Market risk

Market risk

Risk that cannot be diversified away. Related: Systematic risk

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market risk

1. The risk that because general market pressures will cause the value of an investment to fluctuate, it may be necessary to liquidate a position during a down period in the cycle. Market risk is highest for securities with above-average price volatility and lowest for stable securities such as Treasury bills. Market risk is of little consequence to a person who purchases securities with the intention of holding them for long periods.

2. See systematic risk.

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Market risk. Market risk, also known as systematic risk, is risk that results from the characteristic behavior of an entire market or asset class.

One example of this type of risk is that the market prices of existing bonds generally fall as interest rates rise because investors are not willing to pay par value to own a bond that pays less interest than other bonds available in the marketplace.

So if you wanted to sell your existing bonds, you would probably have to settle for less than you paid to buy them.

Asset allocation is generally considered an antidote for market risk, since if your portfolio includes multiple asset classes it tends to be less vulnerable to a downturn in any one class.