It makes sense to be careful these days.

"Investors tend to underestimate volatility," observed Ron DeLegge, editor of ETFguide.com in San Diego. "For example, they underestimated volatility in financial stocks in 2008 and in technology stocks in 2002 because they were looking to history as the guide to the future."

Investors blind to the potential downside were taken by surprise when dot.com stocks crashed and when big financial stocks cut or eliminated dividends, he said. Such dramatic possibilities weren't in their memory bank.

Yet no one should expect miracles either, since even those investments operate in the real world.

"One mistake investors make is assuming that because a fund is less volatile it won't ever lose any money, or that it will lose very little money, in a market downturn," said Leggio, pointing out that a number of the less-volatile funds are fully invested in stocks. "Another mistake is selling whenever a fund is dropping in value because your expectations have been too high, since those dips could present buying opportunities."

AIM Charter "A" (CHTRX) boasts respected manager Ron Sloan, who openly tells his investors he won't do as well as rivals in market upturns but will do a lot better in downturns. An accomplished risk-avoider, Sloan sidestepped last year's debacle in financials. Despite holding a considerable amount in cash, in the recent market upswing he has kept pace with the Standard & Poor's 500, said Leggio.

The well-known Sequoia Fund (SEQUX) is a dependable choice that always holds some cash -- currently a significant 20 percent of its portfolio. It holds 29 stock names, led by Berkshire Hathaway Inc.

"Investors should look at which asset classes tend to be less volatile and an easy way to do this is through ETFs," said DeLegge. "If you want to dial down the risk, look at asset classes or areas with lower volatility."

Though they've underperformed this year, utilities and health care are such sectors considered "safe havens" and steadier than many other groups even in recession.

Utilities Select Sector SPDR (XLU) and Health Care Select Sector SPDR (XLV) are ETFs recommended by DeLegge. Another "stodgy and dull" sector admired for its lack of excitement is the industrials, with Industrial Select Sector SPDR (XLI) DeLegge's ETF choice there.

For investors who wish to avoid a bad case of nerves, Wright recommends dividend-paying stocks.

In pharmaceuticals, Abbott Laboratories (ABT) is a bargain with a dividend yield over 3 percent, Wright said. Telecommunications giant AT&T Inc. (T), yielding around 6.5 percent, offers good value even when the dividend is lower than that.