How to Select the Right Corporate Credits for Your Investment Portfolio

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The corporate credit market has experienced exponential growth over the last several years, driven by global monetary policy and investors’ search for higher yields. The market now offers investors a diversified range of investable opportunities, as well as a long-term, strategic approach. However, investors need to understand how to select the right corporate credits for their portfolio.

A credit investor’s main goal is to earn a profit by lending money. In exchange for the money, the investor assumes the risk of repayment of the debt at predetermined intervals. Many types of loans require collateral, which the credit investor can seize if the borrower is unable to repay the loan.

A bank loan is an example of a senior secured debt instrument. It is issued by a noninvestment grade company and is supported by financial covenants that require the borrower to meet minimum financial performance measures on a quarterly basis. In addition to bank loans, investors can also choose to invest in corporate bonds. These instruments allow investors to lend money to businesses and governments.

While there are many advantages to credit investing, there are also a number of risks to be aware of. The risks involved in credit investing include nonpayment and interest rate risk. If the borrower fails to make scheduled payments, the interest rate will go up and reduce the overall return for the lender.

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