Richard Troue: Take the fund route to market and you won't lose any sleep

The main reason most people invest is to increase and protect their wealth over the long term. So a balance must be struck between capturing growth and not taking uncomfortable risks – between worrying about losing money and worrying about missing opportunities.

Over long periods, the stock market has delivered handsome returns and remains an excellent home for at least part of a savings pot. However, over shorter periods the pendulum of investor sentiment can swing between euphoria and despair, making the decision about when and where to invest even tougher.

Recent years have shown just how volatile markets can be and there may be more of the same this year. Uncertainties related to China, the oil price and the UK's referendum on EU membership, as well as the continuing debt hangover from the financial crisis, are threats.

Plenty of people know they should invest more but are put off by uncertainty or fear of loss. That is understandable but it's also why so many investors have missed out on the last few years of this bull market. Rather than risk missing out on gains, they could benefit from a pooled fund where their money is spread across a range of companies and sectors – and perhaps countries – so that downturns in one area are balanced by gains in another.

Funds tend to make good core investments because they provide access to a diversified portfolio, looked after by a professional manager. Which one you choose will depend to an extent on your personal circumstances and your appetite for risk.

Multi-asset, or "total return", funds can be one solution. The managers here tend to have a lot of flexibility to invest in different assets – combining those intended to generate returns, such as shares and corporate bonds, with those intended to provide stability and preserve capital, such as government bonds and cash.

The Pyrford Global Total Return fund and Personal Assets Trust are good examples of multi-asset funds that could sit at the core of a portfolio. Both have exposure to the shares of large, high-quality companies around the world, but perhaps more importantly right now, both hold plenty of cash and liquid investments (those that can be sold quickly).

Holding cash is sometimes seen as a sin for fund managers, but as Robin Angus, executive director of Personal Assets Trust, recently said: "Cash is freedom. Cash is opportunity. Cash is hope. Cash is our friend, and we will never apologise for holding it when we think it right to do so."

Equity income funds also make good core investments. With these, you basically get paid for being patient – provided you have a long-term horizon, fluctuations in capital value should be of less concern as you are paid an attractive yield while waiting for growth to come through.

Equity income investing also has its own in-built discipline. Fund managers tend to target companies that generate strong cashflow. This can be used to pay high and rising dividends. If a company achieves this, a rising share price should follow, at which point the fund manager can sell and move on to the next investment opportunity.

Neil Woodford and Carl Stick, managers of the CF Woodford Equity Income and Rathbone Income funds respectively, have excellent track records. Both invest part of their portfolios in solid, high-yielding stalwarts, but are also willing to back smaller companies offering the potential for greater capital and dividend growth.

If the core of a portfolio is invested sensibly, you should have peace of mind. The performance might look dull on occasion, but that's the point; it should provide steady growth during the good times and stability in tougher times.

Beyond the core, other funds can be added to suit individual objectives – often referred to as "core and explore". Income-seeking investors might strive to achieve a higher yield, while global funds can increase diversification, and more cautiously managed funds can be added to reduce volatility.