THE temptation is oh so great. Wouldn’t it be convenient to invest in a list of last year’s top-performing mutual funds and hope for the best?After all, that’s the recommendation of far too many financial journalists, who then move on to other things, conveniently forgetting the warning sticker of every mutual-fund company that past returns are never guaranteed.

I will refrain from this kind of financial delusion. While you can never expect yesterday’s winners to continue their streak, you can make an argument for hedging risk and grabbing returns through diversification.

Last year’s gainers were a case in point. International stock mutual funds that specialised in bargain-priced or value companies did extremely well. There are sound reasons for buying and holding them — and for not overloading on them.

Some of the advances posted by these funds were nothing less than spectacular. The top 15 in the Bloomberg mutual-funds database were dominated by non-US small-cap companies, valued between $500 million and $1 billion. All of those funds gained at least 29 percent last year.

Hold on. Am I recommending that you buy the funds with the best 2006 performance? No, but in the spirit of comprehensive financial planning, you will need to examine the risks and rewards of these vehicles to see if they can fit into your holdings.

Let’s take Janus Overseas Fund as a case in point. While 2006 was easily its best year since 1999 — returning 47 percent — the fund has had some tough times.

The good news: It’s ranked in the top 1 percent of similar funds over the last three years. Yet 2000 through 2002 was an ugly period, when it lost money every year with annual losses of at least 23 percent.

How do you know if you are buying into Janus’s fabulous run of the last four years or the 2000-2002 train wreck?

You don’t, yet many investors believe high returns will continue even after a year of price declines. They hold on, hoping the fund manager will get his hot hand back. Sounds like a casino strategy, doesn’t it?

Although less than two months of returns should be no barometer for the rest of 2007, the fund has risen more than 4 percent this year, beating almost three-quarters of its peers as of February 16.

Then there’s the cost of owning the Janus fund. It’s clearly not the cheapest way to invest in non-US markets, with an expense ratio of 0.89 percent. And if you sell it within three months of purchase, you will be punished by a 2 percent early-withdrawal fee.

I’m not arguing for or against the Janus fund. You can’t dispute its performance or the need for owning non-US stocks that are initially bought at discounts.

At this point, the grown-up talk about evaluating potential pitfalls comes to mind. Is it worth taking on the additional risks of a single manager, foreign currencies, small companies and the stock market all at once?

With small, foreign companies, you may have a greater chance of bankruptcy if their local economies weaken. And there’s always the wild card of currency fluctuations. A rising dollar would lower the relative value of these stocks.

The question should be how much risk you can afford, said Larry Swedroe, director of research at St. Louis-based Buckingham Asset Management and author of “The Only Guide to a Winning Investment Strategy You’ll Ever Need”.

Swedroe said those people whose livelihoods are hurt most by a slumping economy may want to have reduced positions in small-cap stocks relative to investors who have stable incomes that are less affected by economic swings.

Applying that observation, doctors, teachers and government employees may be better able to invest more in small-value companies than stock brokers, real-estate agents, construction workers and individual business owners, Swedroe said.

“The important thing to understand is that small and value are independent risk factors and you need to diversify across that,” he said in an interview. “Those investors with a high correlation of their earned income to the economic cycle should consider limiting their exposure to small and value stocks.”

Of course, taking no risk at all and burying your head in the sand by investing exclusively in big US companies or bonds can’t be a sensible option, either. That strategy would concentrate your risk in one country, currency and sector. You may also miss out on heady gains from emerging markets.

For the sake of diversification and lowering risk, consider broad-based, passive international portfolios. If you are working with an adviser, consider the DFA International Value funds.

The iShares MSCI EAFE Value Index and MSCI EAFE Index are exchange-traded funds that also offer diversification at a low cost. For even more coverage of international markets, consider the Vanguard Total International Stock Index Fund.

Since it’s difficult to envision what could go wrong with a fund when so much has gone right in recent years, avoiding temptation and buying based on last year’s returns may be the toughest part of the process.

(John F. Wasik, author of “The Merchant of Power,” is a Bloomberg News columnist. The opinions expressed are his own.)