True story: I woke up last night at 2 a.m. and thought about my portfolio. After lying there for 20 minutes or so pondering my asset allocation, noodling through whether I had enough international exposure, I had an epiphany: Mutual funds!

Granted, that was a pretty lame, unoriginal epiphany, seeing as how Shannon Zimmerman is constantly telling me that funds are the way -- as managing editor of the Fool's newsletters, I read his monthly Motley FoolChampion Funds newsletter, his mid-month updates, his Fool.com commentaries, and his snarky emails, plus we have a weekly phone meeting in which he hammers home the wisdom of mutual funds.

But at 2 a.m., it all came together in my mind.

Look abroad
I need some diversification on the international front. After all, I work for an American company that caters largely to American investors; I own a home in the United States; and most of my savings are invested in domestic firms.

I know that there are plenty of ways to achieve that diversification. There's logic in buying consumer-goods giants such as Colgate-Palmolive (NYSE:CL), Coca-Cola (NYSE:KO), and Kraft Foods (NYSE:KFT), companies that do huge chunks of their business overseas. And Tyco International (NYSE:TYC) is another potentially attractive pick that could balance out my U.S.-focused portfolio, now that the company is recovering from some serious scandals among its since-fired management. There are also many foreign companies that I've heard some good things about that trade in the United States as American Depositary Receipts (ADRs) -- Allied Irish Banks (NYSE:AIB), Portugal Telecom, and Henkel, to name three. But I'm not comfortably familiar with any of these companies, and am not willing to sock any of my savings into any one stock.

Sector bets
Then there's health care. Sitting here at Fool HQ, I constantly hear co-founder Tom Gardner talk about how aging baby boomers will be the "Internet of the next 10 years" for investors. Lots of profits seem to be pointing to the health-care arena, but with the Vioxx turmoil at Merck looming large and further litigation, FDA inconsistency, and patent challenges threatening other big pharma, I'm not confident to choose the sure-fire big winner among the likes of Pfizer (NYSE:PFE), Bristol-Myers Squibb (NYSE:BMY), et al.

There's really no dilemma
I could, of course, buy shares in all of these companies. That would give me diversified international exposure with some heavy-hitting players. I'd have bets in a range of industries that seem poised to outperform the overall market. But I'd (unwillingly) pay a cut to a broker on each transaction -- my, how they add up -- and I'd undoubtedly check the performance (obsessively) every day, all the while lying awake at 2 a.m. some nights wondering if Tyco's new board really is cleaning things up, or if the FDA will approve Pfizer's new drug.

Frankly, I'd rather have a championship-caliber fund manager achieving a portion of my investment goals for me.

The Champion Fund recommended in the July issue of Shannon's newsletter -- he guards his picks pretty vigilantly for his subscribers, so I can't tell you what fund it is -- is actually the subject of my epiphany. Of the companies mentioned above, it counts Coca-Cola, Kraft, Henkel, Tyco, Pfizer, and Bristol-Myers Squibb among its top 10 holdings. And the fund's smart managers have more than bested the market, boasting annualized gains of nearly 20% over the past five years.

Funds are fun
And even if my fund isn't the one for you, Shannon throws out a new top fund every month, plus he's got three model portfolios that can put you in a higher tax -- not to mention a lower stress -- bracket. Shannon looks for the top stock pickers with long tenures, folks who have rewarded their shareholders handsomely over the long haul. And by going with those winners, Shannon's picks have outpaced their indexes a stunning 84% of the time.

And the cost of owning a portfolio of Champs is reasonable. Shannon's Aggressive model, for example, will cost you just 0.74% per year, while the Moderate and Conservative editions cost only 0.67% and 0.52%, respectively. A nice savings compared with the brokerage bills that come with individual stock investing.

Foolish final thoughts
I'm not going to get rid of all my individual stocks -- I need some drama in my life, after all -- but there's no denying that funds will help diversify my portfolio and will keep me sleeping through the night.

If you want to find a way to cover all your investment bases, take a free, no-obligation trial to Champion Funds. You'll get 30 days of access to more than 30 top funds (which are collectively beating the market by 7.8 percentage points), as well as Shannon's three model portfolios, interviews with expert money managers, and a lively community of discussion boards. If you don't like it, take your new knowledge and go. And sleep well.

Roger Friedman is the managing editor of newsletters and the author of Nipple Confusion, Uncoordinated Pooping and Spittle: The Life of a Newborn's Father . He does not own shares of any company mentioned in this article. Coca-Cola, Colgate-Palmolive, and Pfizer are Motley Fool Inside Value recommendations. Merck is a Motley Fool Income Investor recommendation. The Motley Fool isinvestors writing for investors.