Let's say you are extremely risk averse, with a measure of five (you need a gain of $500 in order to play the game with the potential of losing $100), even a high rated fund might be too risky for you. Or your risk aversion measure is only 1.5, then again the fund rating system might not suit you well. The reason is those popular fund rating systems assume all investors have the same and typical risk aversion (around 2 if you want to quantify it), but if your risk tolerance level is outside of the norm, such fund rating guides could potentially mislead you to funds that don't fit your investment style.
Once you have learned your risk tolerance level through the tool we introduced in the last blogpost, the ideal situation is to develop a fund ranking system that is based on your risk tolerance level. Unfortunately such a customized fund ranking system does not exist today.
The Bottom Line? Use caution when you rely on the fund rankings to pick your fund choices.