CJ: When we talk about risk we generally mean falls in capital value from market risk. Credit and default risk is usually factored into the market value and market risk.
The general public often focus more on the kind of absolute loss from default or credit risk because of the scandals that are highlighted in the media and conversations with friends.
The kind of binary lose-it-all or win-it-all is familiar from betting. People often worry more about providers going bust and losing it all, rather than thinking about the market risk that they could tolerate.
Of course, with market falls, there is always the opportunity to remain invested. In this context, credit and default risk could be seen as 'bad' and market risk as 'good risk'.
Educating people about these differences, and that they can get better value returns (without risking it all) with advice and diversification, is a good start.
Simoney Kyriakou is senior editor for FTAdviser
