Page 18 - A Canuck's Guide to Financial Literacy 2020

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Regulatory / Political Risk

Governments have a large effect on social stability and the economic environment for
investment. Look for political stability and business friendly policies.

Purchasing Power Risk

Inflation risk is the risk associated with a cost of living increase or reduced purchasing
power. As the prices of goods and services rise, you have less money to spend at the end
of the day.

Market Risk

It's based on macroeconomic factors and it is risk that is present in all investments. This is
referred to as systematic risk or non diversifiable risk. It's usually measured by beta which
we discuss below.

Exchange Rate Risk

You might experience uncertainty in acquiring securities denominated in a currency different
from that of the investor. Changes in the exchange rate will affect your return when
converting the currency back to your "home" currency.

Systematic vs. Non-Systematic Risk

Systematic Risk

Refers to market risk that affects all investors. It includes macroeconomic conditions,
inflation, interest rate changes and economic direction. Systematic Risk is not diversifiable.

Non-Systematic Risk

Refers to risk that is unique to a business or industry. Adding low correlation funds into your
portfolio will allow you to fully diversify your portfolio. Rational investors can eliminate non-
systematic risk by diversifying their portfolio. Information on diversification can be found
below.