How can systematic risk be mitigated according to the text?

Systematic risk refers to the risk inherent to the entire market or market segment, which cannot be eliminated through diversification. It typically encompasses factors such as economic recessions, changes in interest rates, and natural disasters that affect all investments in the market.

Mitigating systematic risk involves strategies that aim to understand market trends and the broader economic landscape. Conducting thorough research and market analysis allows investors to make informed decisions based on current and projected economic conditions. By analyzing market data, economic indicators, and sector performance, investors can identify opportunities and risks, enabling them to adjust their investment strategies accordingly to reduce their exposure to systematic risk.

For example, a comprehensive market analysis may lead an investor to recognize that certain sectors are poised for growth, while others are declining. This information can guide them in reallocating their investments to better position themselves within the current market environment. Hence, careful research and market analysis are crucial for navigating and potentially mitigating systematic risk.

In contrast, simply avoiding all investment in real estate, investing only in local properties, or having no investment strategy would not effectively address systematic risk. Avoidance limits potential returns entirely, local investments could still be vulnerable to broader market factors, and lacking a strategy would leave an investor unprepared for market fluctuations.