Unsystematic risk, what is it and how to reduce it

Unsystematic risk also known as diversifiable risk or residual risk is something that every investment comes with. There is nothing that can eliminate this risk completely, but it can be reduced.

Basically unsystematic risk is the risk of something unexpected happening like a news even, or bad earnings. While you can do your best to predict how a stock will perform this kind of risk is just unforeseeable.

So how do you prevent it from hurting you? If you long term oriented the best thing to do is to buy a variety of different stocks. This way if some bad news comes out with 1 of your companies it will not affect another one of your stocks.