Around this time each year, many of us resolve to take on a new good habit (or two) in the coming year. Maybe it's exercising more or eating less. Or reconnecting with family, or disconnecting from electronics.

Many investors could benefit by resolving to simplify their portfolios.

"Clutter in your financial life—like clutter on your desktop—has the potential to distract you from the main jobs at hand," says Morningstar director of personal finance Christine Benz. "You may not bother reviewing and maintaining your portfolio if it has too many moving parts."

Further, Benz notes that if something should happen to you, a complex portfolio could make life difficult for your loved ones who are left behind.

Let’s consider three ways that investors can craft simple portfolios and provide some fund picks for each. Of course, be sure to simplify in a tax-smart way. For some, that may mean limiting streamlining to tax-deferred accounts. Or it may call for only modest changes in a taxable account, where you can carefully offset gains with losses.

Idea 1: Swap your actively managed funds for index products

Passive investments have no key-person risk, no strategy surprises—and therefore arguably require less monitoring then their actively managed counterparts. Some might say that you can't beat the market if you're indexing it, which is of course true. But is a shot at beating the market really worth the extra monitoring? For most, probably not.

There are highly rated passive funds in all of the main investment categories to choose from, whether you're seeking growth or value stocks or a combination of the two, large or small companies, foreign stocks, and even bonds.

Among core Australian large-company funds, top passive choices include the silver-rated VanEck Vectors Australian Equal Wt ETF (MVW), and the following bronze-rated options: SPDR S&P/ASX 200 ETF (STW), the BetaShares Australia 200 ETF (A200) and the iShares Core S&P/ASX 200 ETF (IOZ), among others.

Among passive foreign-stock funds, we like the gold rated Vanguard MSCI Intl (Hdg) ETF (VGAD), and the iShares Core MSCI World All Cap AUDH ETF (IHWL), among others. A gold-rated choice encompassing the US heavyweights is the Vanguard US Total Market Shares ETF (VTS).

And lastly, some of our top passive bond fund choices include the following three silver-rated funds: iShares Core Composite Bond ETF (IAF), Vanguard Australian Fixed Interest ETF (VAF) and BetaShares Legg Mason Australian Bd ETF (BNDS).

Premium Members can access a complete list of all Morningstar Medalist funds here.

IHWL, A200 – growth of 10k over three years

a chart showing IHWL v A200 - growth of $10k over three years

Source: Morningstar Premium

Idea 2: Opt for broad all-market equity funds instead of a collection of style-specific equity products

Experts have drummed into our heads the value of intra-asset class diversification. After all, sometimes growth stocks will lead the market, while other times, value prevails. As such, say the experts, make sure you have exposure to both styles. Also, small caps have periods of outperformance over large caps, so be sure to own both. And international stocks can zig when the US market zags; don't forget about emerging-markets equities!

Those of us who've heeded that advice probably have dedicated large- and small-cap funds, individual value and growth funds, and perhaps even multiple international funds.

Do we really need all of these building blocks to have a well-diversified equity portfolio, or can one or two broad-based funds do the job instead?

Of course, far-reaching index funds—many of those already mentioned—can provide sufficient diversification. For instance, pairing Vanguard Total Stock Market with Vanguard Total International Index gives you exposure to a significant chunk of the global stock market. Just two funds, but plenty of diversification—and at a low cost, to boot.

But actively managed funds can fit the bill, too. A bronze-medal rated option in the Australian equity large-blend Morningstar Category is BetaShares Managed Risk AUS Shr ETF (AUST).

Among foreign stock funds, some active, wide-ranging options include two silver-rated Magellan funds: the Magellan Global Equities Fund (MGE) and the Magellan Global Equities Currency H ETF (MHG). Bronze medallists include: the Platinum International ETF (PIXX) and the Antipodes Global Shares ETF (AGX1).

Idea 3: Delegate some/all of your asset allocation to a balanced fund

The previous two ideas assumed that investors want to retain control of their stock/bond mix. But for those who would prefer to back away from being hands-on with their asset mix, balanced may be of interest.

Balanced funds combine stocks and bonds in one portfolio, providing asset-class diversity in a single fund and thereby reducing the need for a lot of oversight.

Balanced funds typically rebalance back to a target stock/bond mix. And those stock/bond blends can be conservative (holding 15 to 30 per cent in equities and the rest in bonds), aggressive (which hold more stocks than bonds), and moderate (whose stock/bond splits are somewhere in between). Some top actively managed balanced funds include the silver-rated Vanguard Diversified Growth ETF (VDGR) (growth) and the Vanguard Diversified High Growth ETF (VDHG) (aggressive).

And in the bronze medal category: Schroder Real Return ETF (GROW) (flexible); the Vanguard Diversified Balanced ETF (VDBA) (balanced); and the Vanguard Diversified Conservative ETF (VDCO) (moderate).