If your account is invested in a single company stock and the company goes out of business, you lose 100% of your investment. This is company risk and can be mostly eliminated by diversifying into many different company stocks. How many different companies do you need to invest in to create a diversified portfolio and decrease company risk? As the number of stocks increases in a portfolio the individual company risk goes down, but once you go beyond 15-20 individual stocks you will be closer to market returns. Less positions increase risk and reward while more positions decrease risk and reward.
If your account is invested in a diversified portfolio of stocks, you may be able to eliminate company risk, but are still exposed to market, economic, and geopolitical risk. Asset allocation reduces but does not eliminate these risks. The three main asset classes are stocks, bonds, and cash. Stocks can be divided into many subclasses such as energy, commodities, financial, tech, etc.
So what asset allocation reduces market, economic and geopolitical risk the most? A 100% cash portfolio will eliminate all risk. Bond heavy portfolios are less sensitive to these risks but also reward/return less while stock heavy portfolios have more risk/reward. 50% stock and 50% bond is a conservative allocation while 80% stock and 20% bond is more aggressive and will generally have larger returns and larger losses.
Currently, bonds and cash have similar returns, but bonds have increased risk, so many are substituting cash for bonds. The risk is that when interest rates go down, you will not participate in the bond gains.
Annuities eliminate risk (except for inflation risk, unless you pay an added fee) but also reduce return due to their internal fees and are generally not advisable unless guaranteed income is required.
