The Failure of the Morningstar Rating System
The problem with the Morningstar rating system is that strong short term fund performance is meaningless since the majority of the 4-5 star funds drop to 3 stars or less within a few short years. When the ratings drop, investors are advised to invest their money in the next set of 4-5 star funds. The result is both investment underperformance and additional losses from paying the substantial commissions required by the fund switch. This cycle is extremely damaging and yet is the norm.