The Superstar Portfolio

Paul Farrell presents another way to build a well-diversified portfolio. It's very simple: You pick nine winners diversified across Morningstar's nine style boxes.

Here are the four steps you need to follow, once a year:

1. Scan Morningstar's database and pick the top no-load equities in each of the nine "style box" categories, from large-cap growth to small-cap value funds.
   
2. Invest an equal amount in each of the nine funds.
   
3. Save regularly, add new money and stay close to your allocations.
   
4. Then next year scan Morningstar's database again: If the nine funds you already own aren't still near the top, replace them. Otherwise, hang onto your winners.

We asked Morningstar research analyst Mark Komissarouk to search the company's database for us. (Anyone can screen their database using their software.) We targeted no-loads open to new investors. You'll see that all the funds picked outperformed the 10-year averages of the S&P 500 (8.9%) and the Dow (9.4%). Even more important, every single one of them outperformed their peer category, often by a wide margin.

So check the results of this grand-slam opportunity: If you had invested $10,000 in each of these nine funds a decade ago, your nine-fund portfolio would have enjoyed a fabulous average annual return of 13.4%, which is 50% higher than the S&P 500's 10-year average return of 8.9%!