12-08-2021, 01:03 PM
Systematic Risk refers to the risk inherent to the entire market. Systematic risk, also known as “un-diversifiable risk,” “volatility” or “market risk,” affects the overall market, not just a particular stock or industry.
UN-systemic Risk refers to the Risk that affects a very specific group of securities or an individual security. Unsystematic risk can be mitigated through a proper level of diversification. While systematic risk can be thought of as the probability of a loss that is associated with the entire market, unsystematic risk refers to the probability of a loss within a specific industry or security.
For the DGI investor, there is another kind of Risk one must familiarize themselves with, that being Interest Rate Risk -
High Yield dividend stocks are among a group of assets that are subject to interest rate risk. Generally speaking, high Yield dividend stocks become more attractive as interest rates fall. But when the Federal Reserve tightens monetary Policy by raising interest rates, dividends become less attractive to investors, leading to an outflow in equities in general and dividend stocks in particular.
For the DGI investor -
If investors cannot avoid Systemic Risk - Is it not better for the DGI investor to concentrate on just a handful of Quality investments with moderate yields,and low payout ratios, and not reach for high yield within a "rising interest rate environment" to mitigate the affect of Interest rate risk ?
And if "Quality" should indeed a key "metric of consideration", How should the DGI investor discern such "Quality" in a rising rate environment - ?
- Just thoughts,
- Scoot
UN-systemic Risk refers to the Risk that affects a very specific group of securities or an individual security. Unsystematic risk can be mitigated through a proper level of diversification. While systematic risk can be thought of as the probability of a loss that is associated with the entire market, unsystematic risk refers to the probability of a loss within a specific industry or security.
For the DGI investor, there is another kind of Risk one must familiarize themselves with, that being Interest Rate Risk -
High Yield dividend stocks are among a group of assets that are subject to interest rate risk. Generally speaking, high Yield dividend stocks become more attractive as interest rates fall. But when the Federal Reserve tightens monetary Policy by raising interest rates, dividends become less attractive to investors, leading to an outflow in equities in general and dividend stocks in particular.
For the DGI investor -
If investors cannot avoid Systemic Risk - Is it not better for the DGI investor to concentrate on just a handful of Quality investments with moderate yields,and low payout ratios, and not reach for high yield within a "rising interest rate environment" to mitigate the affect of Interest rate risk ?
And if "Quality" should indeed a key "metric of consideration", How should the DGI investor discern such "Quality" in a rising rate environment - ?
- Just thoughts,
- Scoot