Total Return = expected return + unexpected return

Most Americans held a certain level of economic expectations last year. We anticipated pieces of the housing bubble, a few of our stocks, the local housing market, and increased energy bills. Then Katrina hit. Boom. Unexpected. The focus of every media source altered. Nationwide, new companies developed, others boomed, and still others suffered or closed shop. The unexpected can be positive or negative. Such unexpected events happen internationally right down to departmentally within a business. Therefore, you want to be aware of (and consider) two things:

Systematic risk: a market risk that influences many assets
Unsystematic risk: asset-specific, unique risk that affects a smaller number of assets

Obviously, Katrina was a systematic risk, as is the closure or relocation of a community’s biggest employer. The loss of an exceptional CFO is an unsystematic risk. Either way, risks are easy to overlook. We complained about gas prices’consider the effects on transportation industries. The effects ripple and become deadly, so you’d better take the time to keep yourself informed.