Are Credit Ratings Investment Advise

Answer 1

No. Credit ratings are not designed to indicate the value, suitability, or merit of an investment. They are opinions of credit quality and, in some cases, the expected recovery in the event of default.

Credit ratings do not suggest whether:

• Investors should buy, sell, or hold rated securities

• A particular rated security is suitable for a particular investor or group of investors

• The expected return of a particular investment is adequate compensation for the risk it poses

• The price of a security is appropriate given its credit quality

• The market value of the security will remain stable over time

Though credit quality is an important consideration in evaluating an investment, it is not the sole criteria based on which you must base your investment decision.

Before deciding whether to invest in a particular investment option, the investor (you and me) must consider a wide range of factors like the investment strategy, time horizon, rate of returns, history of the house issuing the investment option etc. During this process the credit rating too will be considered but I repeat, we cannot and should not base our investment decision solely on the credit rating alone.