The loss-riddled third-quarter fund statement in your mailbox is undoubtedly ugly, but it didn't have to be this bad.

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Statement Shock: Building the Perfect Portfolio

If you're like most people, you've built your stock-fund portfolio by collecting funds you liked one by one. Each seemed like a good idea at the time and many might be good funds, but they might be a bit too similar. Thanks to the tech-led bull market of the late 1990s, many of the funds that caught your eye, like Janus stock funds, were probably stuffed with the same can't-miss tech stocks that have since cratered, taking your funds with them.

The average U.S. stock fund is down about 22% over the past 12 months -- more than double the S&P 500's worst calendar-year loss over the past 20 years. Even worse, tech and tech-laden growth funds, which captured most of the record $309 billion sunk into funds in 2000, are down a gut-wrenching 65% and 36%, respectively. Meanwhile, bond funds and tech-light value funds have had a much smoother road.

The upshot: The idea that the money you invest in stock funds should be spread among funds with distinct styles and portfolios seemed winded when everyone had tech fever, but it has proven its mettle over the past year.

As part of today's special report, Statement Shock, let's look at a couple of model stock-fund portfolios we designed at the start of this year. One is a low-maintenance option with just two funds, while the other is a bit more complex -- for self-described fund junkies. Both would've made the past year less painful, by spreading your dough broadly across the market.

The idea behind the low-maintenance portfolio is that not everyone out there has the time or desire to obsess over their portfolios. People know they need to invest their money to meet daunting long-term goals like a comfortable retirement, but many liken time spent with their calculators to time spent in the dentist's chair.

With these folks in mind, I've roughed out a portfolio for investors with at least a 10-year time horizon. With just two no-load funds, the

(VTSMX) - Get Report

Vanguard Total Stock Market Index fund and the

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Tweedy Browne Global Value fund, this same portfolio gives you broad, cheap access to a vast array of stocks without requiring more than a low-tech rebalancing at year-end to make sure your allocation is on target.

I picked the Vanguard fund because it tracks the broad Wilshire 5000 Total Stock Market Index, giving you exposure to essentially every U.S.-traded stock without making any outsize bets on any particular sector or company. You could actually stop there, but I added the Tweedy Browne fund for exposure to foreign stocks picked by a management team with an uncanny knack for posting above-average returns with modest volatility.

Those traits are mirrored by this modest portfolio. Over the past 12 months it would've fallen 21%. That's less than the S&P 500 and about half the tumble taken by the average large-cap growth fund. The portfolio also would've topped the S&P 500 over the past three years and trailed it by just six-tenths of a percentage point over the past five years.

In addition to those gains, it would've had lower risk than the overall market. Beta measures a portfolio's volatility, or the amount its value changes over a certain period, vs. the S&P 500. Long story short, the S&P's beta is 1.0; a lower beta indicates lower risk. Over the past five years, this portfolio would've offered a smoother ride, with a beta of 0.89.

Another plus: low costs. These two funds' average annual expense ratio is just 0.44%, well below the 1.43% toll charged by the average U.S. stock fund, according to Morningstar. For a little perspective, that adds up to a $44 annual bill on a $10,000 portfolio vs. $143 for the average domestic stock fund.

Of course, some avid investing fans might see the mostly indexed, low-maintenance portfolio as a cop-out. Like a car freak who gets stuck with a Kia at Hertz, they want something with a bit more muscle.

For these folks, let's check out a portfolio we built at the start of this year, boldly dubbed the Perfect Portfolio. Yes, the Vanguard and Tweedy Browne funds are at its core, keeping diversification high and costs low. But then there are growth funds that have historically stayed ahead of their peers like the

(GABGX) - Get Report

Gabelli Growth fund run by Howard Ward and the

(RPMGX) - Get Report

T. Rowe Price Mid-Cap Growth fund run by Brian Berghuis.

To balance out that growth exposure, there are value funds like the

(LMVTX) - Get Report

Legg Mason Value Trust, run by Bill Miller -- the only fund manager to top the S&P 500 on the same fund in each of the past 10 years. There's also the

(OAKMX) - Get Report

Oakmark fund, with value veteran Bill Nygren calling the shots. For small-cap exposure, I picked the

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Managers Special Equity fund, where a cadre of value and growth managers blend their favorite picks in one portfolio.

Finally, there are sector funds zeroing in on the financial (

(FSFSX)

Invesco Financial Services), health care (

(FSPHX) - Get Report

Fidelity Health Care) and technology industries (

(TVFQX)

Firsthand Technology Value). Since each focuses on stocks in just one sector, however, they can be risky. That's why they add up to just 10% of the portfolio in sum.

Naturally, some might ask, why bother owning tech-heavy growth funds or a tech fund given their steep drops since the

Nasdaq's

peak last year. Yes, they have been a drag on returns, but the idea behind diversification is to own funds that give you exposure to each sector and style, regardless of which happens to be working at any given time.

And when executed effectively, it can make a tough period less painful. Yes, the portfolio has fallen 20% over the past 12 months, but that's less than the S&P 500. It also tops that benchmark over the past three and five years, according to Morningstar. Even better, the portfolio has been less volatile than the index.

As you can see, a diversified portfolio wouldn't have avoided the past year's losses, but it would have kept them in line with the market. If you like this idea and have a tech-sick tax-deferred account like a 401(k) or IRA, you can change your roster without incurring any taxes. If you'd like to do the same with a standard taxable account, it's not as simple, but you can gradually balance out your portfolio with savvy tax-loss selling and new investments. If you're looking for solid stock-fund candidates in a category you've ignored, check out this

Big Screen archive, where you can check out a short list in each fund category.

One thing to remember is that these are stock-fund portfolios and for many investors they aren't complete without at least modest exposure to a bond fund. That's not a tough sell now. Thanks to stocks' extraordinary losses over the past 18 months, bonds are actually

beating stocks over the past three years. My two favorite core bond-fund choices are the

(VBMFX) - Get Report

Vanguard Total Bond Market Index fund and the

(FBDFX)

Fremont Bond fund. Check out this

Big Screen to see some more choices.

The bottom line: Don't let your depressing third-quarter account statements sap your desire and ability to fix your portfolio.

Ian McDonald writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

imcdonald@thestreet.com, but he cannot give specific financial advice.