What is meant by 'systematic risk'?

Systematic risk refers to the inherent risk that affects the entire market or a significant portion of it. This type of risk is related to factors such as economic shifts, political instability, changes in interest rates, or natural disasters that can impact all investments simultaneously. Unlike risks that are specific to a particular company or industry, systematic risk is unavoidable and cannot be eliminated through diversification. Investors need to be aware of this type of risk because it can influence overall market performance, regardless of how well a specific investment is doing. Understanding systematic risk is crucial for making informed investment decisions and for strategic portfolio management, as it shapes the overall volatility and potential return of asset classes.