According to Investopedia, investing in shares entails two main risks: systematic risk and unsystematic risk. systematic risk: the risk of a generally declining market and systematic risk: the risk of a decline in single action independent of market outcomes. Ultimately, a single action has no safety margin that the investor could lose all the value of the initial investment.
Function
When a company fails, the owners of capital (shareholders) will lose the entire value of their property and debt holders become owners of new shares.
Features
individual actions may be at risk of bankruptcy, but thanks to the diversification of risk is not sufficiently systematic or firm-specific risk can be minimized.
Benefits
If a business is particularly at risk of bankruptcy, the shares continue to maintain the condition of the asset class with the best results over time.
Warning
While diversification is to minimize unsystematic risk, systemic risk – or market risk – can still cause a portfolio of losses due to economic difficulties.
Considerations
History has shown that a diversified portfolio with an asset allocation appropriate and sufficient can outperform other asset classes over a long period.