Indeed, the portfolio-building strategy you adopt is at least as important as the funds you end up buying. Some strategies are as simple as putting together a collection of index funds. Build a global portfolio using funds that aim to replicate the performance of the market averages. Others are riskier, involving hefty bets on particular stock-market sectors or on the market's overall direction. And you don't have to pick just one strategy.
Many investors end up combining two or more portfolio-building approaches.
Possibly the most popular strategy is to spread money among the best fund managers in some well-defined market sectors. The goal is to get the risk reduction that comes from broad diversification, while at the same time bolstering returns by picking top-notch managers. You start by deciding what types of stock funds you want to buy. Value funds look for stocks that are cheap compared with corporate assets or earnings. Growth and value funds often do well at different times, so you can get smoother portfolio performance by owning both.