How do I know that a mutual fund will grow at least 8%?
The answer to this question is simply: you don’t. But in general the market rises over time. Check out the following mutual funds over the last few years:

This trend is consistent for just about every mutual fund. In many cases, any money you invested 5 years ago would be worth almost double today. In general, any mutual fund is better than simply putting your extra money in savings (although it is important to have some money in savings in case of emergencies).
Which mutual fund should I choose?
The first step is to determine what kind of mutual fund you’re looking at. One tool is the Morningstar Style Box which categorizes funds according to size (small, medium, and large capitalization, where “capitalization” is the total worth of the company, equal to the number of shares multiplied by the price of each share) and style (value vs. growth).

A fund’s category on each of the two axes is determined based on the stocks that compose it.
- Size: Large-cap stocks account for the top 70% of the capitalization of their geographic area; mid-cap stocks are the bottom 10%-30%, and small-cap stocks are the bottom 10% of capitalization.
- Style: Morningstar says, “In general, a growth-oriented fund will hold the stocks of companies that the portfolio manager believes will increase earnings faster than the rest of the market. A value-oriented fund contains mostly stocks the manager thinks are currently undervalued in price and will eventually see their worth recognized by the market. A blend fund might be a mix of growth stocks and value stocks, or it may contain stocks that exhibit both characteristics.”
For more on the style box, see Morningstar Style Box, Morningstar Investing Glossary
To analyze a fund’s performance, compare its 3-year, 5-year, and 10-year returns to a benchmark that’s in the same category. Morningstar does this for you on their site: www.morningstar.com.
The following video demonstrates how to analyze a fund on their site.