Question

A conservative customer is invested in a large-cap, value-managed equity fund. The stock market drops 10% due to a poor economic forecast for the country. Your customer is upset that his conservative mutual fund lost almost as much as the stock market. What risks does your customer need to understand?

Answer 1

1. Market risk

2. Systematic risk

Step-by-step explanation:

Considering the situation described in the question above, my customer should understand the following risks:

1. Market risk: this is the probability that an investor will undergo losses as a result of circumstances that affect the all-around performance of investments in the financial markets.

2. Systematic risk: this is the type of risk that investors experience loss of some of their principal as a result of price volatility in the overall market which may be attributed to any of the economic, political, or social factors, but beyond the company's control.