Most investors, especially those just getting started, don’t have enough money to build a healthy stock portfolio on their own. Mutual funds are professionally-managed portfolios of stocks or bonds (or sometimes other assets) that are bought by individuals as shares. For investors, this offers professional management and a diverse set of investments, without a lot of work.

There are more than 8,000 mutual funds for sale, many with different strategies and mandates. A few big differences: Some funds invest only in stocks, or only in bonds, or some in each; Actively-managed funds try to beat the market, while index funds seek to match the market at a low cost. Then there are finer distinctions: You can find a fund that invests only in a specific country or geographical region; you can buy a fund that invests only in a certain sector; or, you can hold a fund which only buys stock in companies of a certain size.

If you’re buying your first stock mutual fund, experts suggest a broad fund that focuses on large companies. You can add more focused funds later, but you should start with the basics. Once you know what kind of fund you’re looking for, here’s how to choose a fund within a category:

Start with performance. While the boilerplate warning on any investment is past performance does not indicate future results, performance is still a good place to start looking for a fund. When comparing performance, however, it’s important to measure a fund against others like it.

• Check the benchmark. A mutual funds is required to disclose a benchmarks in its prospectus (the published guide for the funds strategy, rules and holdings.) Benchmarks usually include a stock or bond index as well as some return measurement for other funds in its category. Most U.S. stock funds focusing on large companies use Standard & Poor’s S&P 500 stock index. You’re looking for funds that have consistently matched or outperformed their benchmarks.
• Mind the average. Look for funds that consistently beat the average fund in their category. Use Morningstar.com’s Fund Screener to find highly rated funds that have a 5-year return equal to or greater than their category average.

Know your manager. Mutual funds are generally run by one or several managers or teams. Funds designed to track an index, called index funds, are less dependent on actual people to manage them, whereas funds looking to beat an index or pick-and-choose within a sector rely on actual people or unique computer models to pick the stocks.

• Check manager tenure. Look up the fund you’re considering on SmartMoney.com, and check how long the manager has been there. Tenure is the first sign that fund investors are in-line with the portfolio manager’s investment style.
• Benchmark against tenure. While some fund managers are able to build upon successful track records of their precursors, it’s still important to understand how a manager has performed against their benchmark during their time in charge.

Be a cheapskate. All mutual funds have expenses, called the expense ratio — the percentage of fund assets that goes to pay the fund’s operating expenses, including fees to managers and even marketing. Every dollar that goes to paying a fund’s expenses is a dollar you’re not getting back.

• A cheap option. Index funds, based on indexes published by Dow Jones, Standard & Poor’s, Morningstar and others, will always be cheaper than mutual funds whose stocks are picked by portfolio managers. Index funds simply replicate the published index and require little to no human intervention. If you’re picking your first mutual fund, experts often recommend going the index fund route because they are simple and cheap.
• Consider ETFs. A variation on mutual funds, exchange-traded funds (ETFs) often track stock indexes. Unlike mutual funds which only price once a day, ETFs are traded all day and re-price constantly. Expense ratios for index ETFs tend to be lower than index mutual funds, but you have to consider trading commissions paid to your broker.

What not to do when buying a stock mutual fund.

• Don’t buy the same fund twice. Before you add a second or third fund to your portfolio, compare the stocks it owns to the stocks in other funds you own. Sometimes funds might sound different in theory, but own a lot of the same stocks in practice.
• Don’t ignore the funds you own. It’s a good idea to check back once or twice a year to make sure the fund you chose is performing the way you expected it to.
• Don’t chase hot investing ideas. You shouldn’t ignore your investments, but you shouldn’t trade in and out of funds or categories too often, either. Don’t sell a fund because of a short-term dip in performance, or because you’ve heard gold prices are soaring. Make a plan and stick to it.

For more to read: Morningstar’s Investing Classroom has some great material on choosing a mutual fund. See also AAII’s annual guide to the Top Mutual Funds. updated every February.