Friday, June 14, 2013

Risk Free

Nothing is risk free. Someone told me the other day that the only thing to buy is government bonds because they are risk free. Why then would they pay interest on these bonds? They may be of low risk, but they are not risk free. You should not confuse low risk and no risk.

Government bonds maybe lower risk than other things you can invest in. A government openly defaulting on bonds is not the only thing governments can do to bond holders. Government can rewrite the rules governing concerning the paying back of the bond and bond interest. For example they can extend the date they will call in the bonds. Governments can also print more money, create inflation and pay back bonds loans with money that is worth less than the money they got for selling the bonds originally.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my site for an index to these blog entries and for stocks followed. Follow me on Twitter.

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