Owen Raszkiewicz

So I put Kate on the spot.

You did a really good job of answering that.

So imagine, so there's two different types of risk and one of them cannot be diversified.

And that's this idea of market risk or systematic risk.

So let's use that example.

Imagine you're a wealthy individual and you want to buy 10 houses and you buy them all on one street in the same suburb.

If that street is next to a bushfire area and it catches fire, you've lost all of your investment, 100% from one risk, which is a specific risk to that street, which is a bushfire, right?

But now imagine that you own 10 houses around the whole of the country, but the entire property market in Australia falls.

There's no way to avoid that if you wanted to invest in property.

So that's the market risk.

That's just a general market risk.

So let's just take a share market example.

If you invest in only, I don't know, bank shares and something really bad happens to the banking segment of the market, that's poor diversification because you could have avoided that if you spread it out over the whole entire different type of shares that are available in the market, the whole market.

So that's trying to minimize that specific risk that might apply just to banks.

But if the whole share market falls, i.e.

market risk, there's no avoiding that.

Exactly.

So that's...

There is one that we can avoid, which is the specific stuff going wrong.

There's one that we can't avoid, which is market risk.