Investment Grade

What it is:

Investment grade is a quality designation ascribed by rating agencies to bonds that have little risk of default.

How it works/Example:

Municipal and corporate bonds are rated by credit agencies, such as Standard & Poor's and Moody's, based on the creditworthiness of the issuer. Investment grade indicates that a bond is a safe, low-risk debt instrument on which the issuer is unlikely to default.

Ratings of BBB- or higher by Standard & Poor's or ratings of Baa3 or higher by Moody's designate a bond as investment grade. Ratings are subject to change depending of the financial health of the issuer.

Why it Matters:

Credit ratings allow investors to better gauge the risks level associated with a specific bond. Investors seeking lower-risk debt tend to choose investment-grade bonds.

Bond investors should be aware that a decline in a bond's rating could adversely affect its market value.

Best execution refers to the imperative that a broker, market maker, or other agent acting on behalf of an investor is obligated to execute the investor's order in a way that is most advantageous to the investor rather than the agent.