Unsystematic Risk in 2025: Strategies for Australian Investors

Every investor knows the thrill of finding the next big winner on the ASX. But beneath the excitement lies a less glamorous reality: the threat of unsystematic risk. In 2025, with markets more unpredictable than ever, understanding and managing unsystematic risk isn’t just savvy — it’s essential for every Australian looking to build real, resilient wealth.

What Exactly is Unsystematic Risk?

Unsystematic risk, sometimes called “specific” or “idiosyncratic” risk, refers to the dangers that are unique to a particular company or industry. Think of it as the risk your favourite mining stock might collapse due to a CEO scandal, or your tech shares plummet because of a failed product launch. Unlike broader market swings — which affect all stocks — unsystematic risk is isolated and unpredictable.

Examples of unsystematic risk include:

• A sudden leadership change in a listed company
• A product recall or a major lawsuit
• Industry-specific regulation changes (like the 2025 tightening of fintech lending rules)
• Fraud or accounting scandals

In 2025, Australian investors have seen unsystematic risk play out in sectors like lithium mining, where environmental regulation shifts abruptly, or among fintech disruptors navigating new APRA oversight.

Unsystematic vs. Systematic Risk: Why the Distinction Matters

Systematic risk is market-wide — the kind you can’t diversify away. Rising inflation, Reserve Bank interest rate decisions, or global recessions hit nearly every asset class. Unsystematic risk, however, is the wild card affecting just a slice of your portfolio.

This distinction is crucial for two reasons:

1. Control: You can’t control the market, but you can control your exposure to unsystematic risk.
2. Diversification: Through strategic diversification, you can nearly eliminate unsystematic risk — but not systematic risk.

Australian superannuation funds and robo-advisers have doubled down on this approach in 2025, leveraging diversified ETFs and multi-sector portfolios to reduce the impact of company-specific mishaps.

How Australians are Managing Unsystematic Risk in 2025

The past few years have delivered plenty of reminders about the dangers of putting too many eggs in one basket. Here’s how Australians are tackling unsystematic risk today:

• Diversification as Standard: Most financial advisers now recommend holding at least 20–30 different shares across various sectors. The rise of low-cost index funds and micro-investing platforms like Raiz and Pearler makes this easier than ever.
• Smarter Sector Balancing: With energy transition and tech volatility in the spotlight, investors are spreading their bets across traditional sectors (like banks and healthcare) as well as emerging industries (such as renewables and agri-tech).
• Dynamic Rebalancing: 2025’s volatility has encouraged more regular portfolio reviews, with many Australians now rebalancing quarterly to avoid outsized exposure to any one company or sector.
• ESG and Regulatory Screens: New APRA and ASIC reporting requirements have highlighted governance risks. Investors are using ESG screens to weed out companies with weak oversight or high legal exposure — a direct response to recent corporate scandals.

Consider the collapse of a major Australian construction firm in early 2025, which blindsided investors who were overweight in the sector. Those with diversified holdings — including infrastructure, property trusts, and global equities — saw minimal impact.

Can Unsystematic Risk Ever Be Eliminated?

While you can’t predict every twist and turn in the market, you can make sure no single bad news event sinks your entire portfolio. Academic studies and ASX research show that after you hold around 30 well-chosen assets, most unsystematic risk is diversified away. What remains is the broader market risk — which everyone shares, no matter how many shares you own.

Key strategies to reduce unsystematic risk:

• Invest broadly across sectors and geographies
• Use managed funds or ETFs with a track record of diversification
• Regularly review and rebalance your portfolio
• Stay alert to changes in company fundamentals and industry news

For Australians in 2025, the message is clear: unsystematic risk is manageable, but only with deliberate action.