Morningstar Risk Rating


DEFINITION of 'Morningstar Risk Rating'

A ranking ranging from one to five stars, with one being the poorest rank and five being the best, given to publicly traded mutual funds and ETFs by the investment research firm Morningstar. Morningstar's risk ratings, also called star ratings, are designed to help investors quickly identify funds to consider purchasing for their portfolios. These ratings are intended to be a starting point for further research and are not buy or sell recommendations.

BREAKING DOWN 'Morningstar Risk Rating'

Morningstar risk ratings have been around since 1985 and are based on the fund's past performance, the fund manager's skill, risk- and cost-adjusted returns, and performance consistency. Morningstar assigns a one-star rating to 10% of the funds it evaluates, a two-star rating to 22.5% of funds, a three-star rating to 35% of funds, a four-star rating to 22.5% of funds and a five-star rating to 10% of funds. Morningstar also provides category ratings and peer-group ratings to help investors further compare funds.

  1. Systematic Risk

    The risk inherent to the entire market or entire market segment. ...
  2. Diversification

    A risk management technique that mixes a wide variety of investments ...
  3. Treasury Bill - T-Bill

    A short-term debt obligation backed by the U.S. government with ...
  4. Morningstar Inc.

    A Chicago-based investment research firm that compiles and analyzes ...
  5. Risk

    The chance that an investment's actual return will be different ...
  6. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
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