Whenever investors panic they invariably flee out of shares to safe havens such as fixed interest investments.

Government and corporate bonds along with hybrid securities such as subordinated debt are seen as solid, dependable investments which carry far less risk than the current share and property rollercoasters.

Unfortunately those assumptions can be wrong.

With the current global uncertainties, it worries us that investors are blindly dumping shares and rushing into any type of fixed interest investment on the assumption that they’re all equally as safe as each other. They’re not.

There used to be the old saying that you invest in government bonds because countries don’t go broke. Since a number of South American countries defaulted on repaying their government bonds, and the likelihood of Greece defaulting, that assumption no longer holds true.

One of the big mistakes we make as average investors is that when we panic we wildly shift from one asset class to another and completely lose perspective in terms of a balanced portfolio designed to ride the investment cycle.

Fixed interest investments are a foundation for any portfolio but understand the risks attached to the different types and never assume they are 100 per cent safe.

Government Bonds; this is effectively a loan to a Government which they promise to pay back in full at the end of the term and pay an interest rate return along the way.

Investors can either hold the bond until the end of the term and get their money back or sell it on a secondary market early. But if the bond is sold early you may not get back the face value.

For example, if you hold a bond paying 2 per cent interest and you want to sell it early at a time when current bonds are paying 5 per cent interest, you’ll probably have to offer a discount on the face value to entice investors to buy yours.

When it comes to risk, investors need to take a view on how likely the Government is to be able to repay the money. In the current environment, US government bonds are regarded as the safest and most likely to repay while Greece is at the other end of the risk scale.

That risk is reflected in the yield (interest rate) being offered. 10 year US government bonds are currently yielding 1.58 per cent while Greek 10 year bond yields are 28 per cent because there is a huge risk Greece won’t be able to repay.

Australian Government bonds are at the US end of the risk scale and regarded as amongst the safest in the world.

Corporate bonds; just like Government bonds but investors are lending to companies rather than Governments. They are not like shares.

Buying a company’s shares means you become a part owner of the business while buying a corporate bond means you become a creditor of the company which agrees to pay your money back at the end of the term and regular interest payments along the way.

Again, the biggest risk for investors is the ability of the company to repay and meet the interest payments. It’s important to check the credit rating of the company which reflects the risks of that company.

There are credit rating agencies (like S&P and Moody’s) which issue these ratings from AAA (the safest) through to BBB- (the lowest investment grade).

Corporate bonds come in all shapes and sizes so check whether they are secured against the assets of the company so if it goes broke investors are near the top of the queue to be paid back when the assets are sold. Shareholders are usually at the end of the queue.

Hybrid securities and notes; these are the investments which scare us and where investors must do their homework acerfully. They’re called everything from credit-linked notes to senior debt and covered bonds.

As investors have stampeded to safety and fixed interest investments, many companies have engineered fancy products which can be a mixture of a share and a bond so the return is higher and looks more attractive.

What worries us is many investors assume they’re as safe as a corporate bond with higher returns.

But depending on the terms of the individual investment the company may have the ability to defer or stop interest payments at anytime, terminate and buy-back the investment early or have extraordinarily long terms.

Hybrids generally rank below corporate bonds in the queue to be paid back if a company goes broke.

So it is critical to understand what the investment is and terms and conditions.