Most investors are aware that a balanced portfolio of stocks, bonds and other investments offer the best method of investment stability, and (likely) profitability over time. Some might say bonds offer the most safety along with treasuries of a like nature. In many instances, this may be true. But in others it may be less so. Where a currency is based on trust and a country’s ability to support that currency through borrowing (where the gold standard does not apply), bonds rely on the ability to pay rate of return. If the rate of return is not supported, the bond, financial backs of that bond and the bond issuer fall.
In recent days, Dubai has found itself in this plight. It has asked for additional time to pay out its interest on $3 billion in bond payments. Some may say $3 billion for an emirate such as Dubai is very little. In a certain way this may be correct, but the underlying trust in the bond, and the fact that overall debt incurred by the emirate is not published, is diminished. In relative terms, the overall issue in this particular case seems to come from over building and the likely idea that the emirate does not want to go to its other emirate partners for help (giving up control, as-it were) and that there may be further financial issues to come.
So the overall point, as illustrated, is that a balanced portfolio does require a blending of differing investment vehicles, but that even when investing in the safest classes one must be wise and see what the state of that vehicle sector is. It is not enough to just think “bonds or treasuries are the safe move.” Which bonds and which treasuries are the safe move for a portion of the portfolio? One must also consider what circumstance is the issuer in? After consulting a registered investment advisor, remember that even a country can get into trouble. Bonds and treasuries are generally a safe bet but doing one’s homework is paramount.