Morningstar is a go-to spot for mutual fund advice

Portion of a stock trading board

Investing — not just saving — is essential if you want to retire comfortably someday.

That’s why you’ve been diligently contributing a percentage of each paycheck to your 401(k).

But you’re not sure if the investments you picked when you enrolled were the best choices.

Or perhaps you’ve set a portion of each paycheck aside for your Roth IRA, but that cash is just sitting there, earning nothing.

The investment options are overwhelming: As of August 2012, there were 7,675 mutual funds and 1,216 exchange-traded funds (ETFs) in the United States, according to the Investment Company Institute.

Even if you’re limited to a small pool of funds selected by your employer, there are hundreds of criteria on which you can evaluate each fund.

Wouldn’t it be great if a trusted source could just tell you which mutual fund to invest in?

Fortunately, new investors — and even seasoned pros — have a great place for investment advice in Morningstar, an independent research company whose nearly 200 financial analysts evaluate funds and publish their findings on a mostly free website.

Morningstar’s rating system uses a five-star graphic to depict investment fund performance. The stars synthesize the key factors that affect a fund’s performance to let you know how good an investment it’s likely to be.

Beginner investors often make the mistake of choosing a fund based just on its historical returns. They think that whichever fund earned the highest returns in the past will earn the highest returns in the future.

If investing were that easy, most of us would be rich. But we’re not.

More sophisticated investors know they need to dig deeper, that factors like price, yield, expenses and volatility are all important.

Even if you perfectly understand what each of these criteria mean — and most people don’t — you don’t have time to evaluate all the options.

Morningstar’s ratings take into account past performance as it relates to the level of returns generated for the amount of risk taken. Funds must be at least three years old to receive a star rating.

The ratings consider investor psychology, taking into account that most investors like consistency in performance and are willing to sacrifice a bit of potential return to get that stability.

Morningstar’s analyses have shown that star ratings are, in fact, reliable predictors of success, but that you’ll achieve better results if you base your initial investment decisions on a combination of five-star ratings and low expense ratios.

Expense ratios are the ongoing percentage fees you pay to hold a fund.

They nibble away at your returns in good times and bad, but low-cost funds consistently outperform high-cost funds in any market.

A Morningstar study found that "cheap 5-star funds ... were 57% more likely to succeed than a fund with an average star rating or an average expense ratio and 2.6 times more likely to succeed than a 1-star or high-cost fund."

A 57% success rate sounds good, but it’s far from perfect. It’s a 43% failure rate.

That’s why Morningstar advises, “Don't look for the 10-second answer. You should understand management, strategy and stewardship, too, before you send in your check.”

Here are three areas to examine when deciding whether you should invest:

You should also consider how a fund is performing relative to its benchmark. Benchmarking tells you that a bond fund might be performing poorly because bonds are performing poorly in general — not because the fund is bad.

Morningstar also emphasizes that you can’t pick the right funds unless you have investment goals and know what kinds of funds will help you achieve them.