Bond ratings gauge a bond issuer’s financial ability to repay its promised principal and interest payments. Ratings are based on an analysis of the issuer’s financial condition and creditworthiness. In essence, the higher the rating, the more likely it is that a bondholder will receive his or her principal again when the bond matures.
Credit rating agencies assess the risks of certain bonds, issuing grades that reflect the issuer’s ability to meet the promised principal and interest payments. The best-known independent rating services are Standard & Poor’s, Moody’s Investors Service, and Fitch Ratings. The following are the rating scales for each agency, ranging from the highest quality to the lowest (and possibly default). They are rated in descending alphabetic order from A to D.
Standard & Poor’s: AAA, AA+, AA, AA–, A+, A, A–, BBB+, BBB, BBB–, BB+, BB, BB–, B+, B, B–, CCC+, CCC, CCC–, D
Moody’s: Aaa, Aa1, Aa2, Aa3, A1, A2, A3, Baa1, Baa2, Baa3, Ba1, Ba2, Ba3, B1, B2, B3, Caa1, Caa2, Caa3, Ca, C
Fitch: AAA, AA+, AA, AA–, A+, A, A–, BBB+, BBB, BBB–, BB+, BB, BB–, B+, B, B–, CCC, DDD, DD, D
A credit rating is not a recommendation to purchase a particular bond. Bonds with higher ratings typically have a lower yield. Bonds with lower ratings generally offer higher yields, but the risk that the issuer will default is greater. You should carefully weigh the risks of investing in these bonds.
In addition to credit risks, bonds are subject to interest rate and inflation risks, and they have different maturities. The principal value of bonds fluctuates with changes in market conditions. If sold prior to maturity, a bond may be worth more or less than it’s original value.
INVESTING RISK DISCLOSURE
Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money. Before investing, consider the funds’ investment objectives, risks, charges, and expenses. Contact Mahoney Asset Management for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.
IMPORTANT CONSUMER INFORMATION
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An investor may obtain information concerning a broker-dealer, an investment advisor, or a representative of a broker-dealer or an investment advisor, including their licenser status and disciplinary history, by contacting the investor’s state securities law administrator.
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The financial calculator results shown represent analysis and estimates based on the assumptions you have provided, but they do not reflect all relevant elements of your personal situation. The actual effects of your financial decisions may vary significantly from these estimates–so these estimates should not be regarded as predictions, advice, or recommendations. Mahoney Asset Managment does not provide legal or tax advice. Be sure to consult with your own tax and legal advisors before taking any action that would have tax consequences.
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