Some investors might hesitate before investing in a mutual fund that has a three-star rating from Morningstar. Why settle for three-stars when you can have five?

The trouble with this star rating system is it is based solely on past performance. It is a rating system with 20-20 hindsight.

The real question is how successful is the Morningstar star system at predicting future returns? Based on a recent study by the Burns Advisory Group, it appears to be not very well.

The Burns Advisory Group studied the performance of all Morningstar five-star funds over a ten year period starting with 1999. Their results confirm what other similar studies have shown… a mutual fund’s past performance is not a good indicator of future success.

Of the original 284 five-star funds only four funds retained a five- star rating ten years later; while 87 funds actually closed their doors. In all categories except international stocks, the average performance for five-star funds over this ten year period was below the average performance of their respective categories.

At SensiblePortfolios we don’t build portfolios using a five-star rating system. Instead, we design portfolios that:

1. Seek to capture market returns using the passive approach to investing.
2. Control volatility by owning a well diversified portfolio.
3. Invest in over 10,000 securities in 43 countries
4. Hold bonds with short-term maturities.
5. Keep expenses low…fees matter!!

Our portfolios are designed to meet your specific investment goals and need for safety. To learn more about this prudent investment strategy, please call Darrell Armuth at 775.323.1488 or visit www.sensibleportfolios.com.