Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Morningstar Risk Rating

What it is:

The Morningstar risk rating is Morningstar's evaluation of a mutual fund's level of risk.

How it works (Example):

The mutual fund ratings agency Morningstar ascribes a risk rating to each fund it covers. This rating is a comparative measure against the yield of the T-bill and examines the frequency of a fund's losses. Risk ratings are granted by mutual fund class and are centered on an average loss represented by the number one (1). In other words, if a given fund has a rating of one, then its losses reflect the average for its class. A fund with a risk rating of 1.5 would be 50% higher risk than the average of other funds in its class.

Why it Matters:

The Morningstar risk rating system helps investors and financial planners to make more careful choices when diversifying a portfolio based on a specific risk preference.