The decision to invest is a relatively easy one — you want to save money for a future purchase or for a comfortable retirement, and you want that money to make more money for you. So, you decide to invest it. That’s the easy part.

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But then you need to decide what to invest in. You could buy stocks, bonds, mutual funds, bitcoin, collectables, commodities — the list goes on and on.

Mutual funds are the best solution for many circumstances. They are readily available, easy to own and trade, and offer instant diversification. But which mutual fund — or funds? In 2023, there were 7,222 mutual funds in the United States, according to Statista. Which one(s) should you choose? Does it matter? How do you decide?

It’s easy to assume all mutual funds are more-or-less the same, but they can vary widely in terms of risk, performance and fees. Investing in the wrong fund could mean your time horizon doesn’t match, potentially leading you to make withdrawals in a down market, or it could mean you end up paying far more in fees than you might otherwise, among other differences.

Here’s what you need to know about the factors that should go into determining which investment fund(s) you should choose.

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The first question to ask yourself is what you hope to accomplish by investing.

Do you want to earn enough money so you can eventually live off your returns and never touch your principal? You’ll need a relatively aggressive fund that reinvests dividends.

Do you want your investments to generate income you can use to supplement your paycheck? Look for a fund made up of dividend stocks.

Do you want something that’s nearly a sure thing, earning a relatively small return but with little danger of losing money? A bond fund may fit the bill.

The amount of time you plan to invest for can make a difference in what type of investment you choose.

If you have a short time horizon, say three years or less, look for low-risk investments like bond funds. These have a guaranteed rate of return, so you won’t run the risk of having to withdraw your money in a down market.

If you plan to stay invested for 20 years or more, you can look at stock mutual funds that include investments that are more volatile.

Understanding your risk tolerance is critical, not only to your investing success, but to your mental health. If you plan to invest over the long term, you also need to be able to sleep at night, so it’s important to know how much risk you feel comfortable taking.