NEW YORK (TheStreet) - Since stocks hit bottom in March, investors have been gaining confidence, withdrawing more than $300 billion from money-market funds and putting the cash to work. Much of that money has gone into top-performing bond funds.

During the first seven months of 2009, $25 billion poured into the PIMCO Total Return Fund, according to Morningstar. That was a huge inflow for a fund with $169 billion in assets. Other funds that attracted more than $4 billion in assets include the TCW Total Return Bond Fund, Vanguard GNMA Fund and Vanguard Short-Term Investment-Grade Fund.

Many investors dumped value funds that had sunk when financial stocks collapsed. Stock funds that have suffered withdrawals of more than $2 billion include American Funds Washington Mutual and Fidelity Value.

The average 401(k) account now has 45% of its assets in fixed income, up from 31% in 2007 and 28% in 2000, according to Hewitt Associates, a human resources consultant. Are investors racing into bond funds at the wrong time? Perhaps. But some financial advisers argue that nervous shareholders may need to raise their bond allocations.

In recent years, plenty of investors held more stocks than they could tolerate, says Larry Swedroe, research director of Buckingham Asset Management, an investment adviser in St. Louis. When markets collapsed in February and March, shaky investors panicked and sold near the bottom.

If you dumped stock funds at the low, should you shift gears and buy now that the markets are recovering? Probably not, Swedroe says. Those who couldn't tolerate the downturn need to develop suitable allocations. Investors who buy too many stocks now may panic again during the next downturn.

"The difference between smart people and fools is that smart people learn from their mistakes, and fools keep repeating what they did," Swedroe says.

To develop a sensible portfolio, start by recognizing that stocks suffer horrendous downturns periodically, Swedroe says. The 50% decline between the end of 2007 and the March low was hardly unique. The market suffered similar setbacks after the tech bubble burst in 2000 and during the downturn of 1973 and 1974. If you can stomach an occasional stock market crash, you should invest heavily in equities, he says.

"If you can lose 50% without panicking and selling, then you can keep up to 100% in equities," says Swedroe says. "But if you can only stand to lose 20%, then you should hold 50% in stocks."

Another expert who urges caution is Vern Hayden, a financial adviser in Westport, Conn. When the market is rising, clients might say they can handle a large drop. But that outlook usually changes when stocks drop.

"The truth is that many clients don't have any idea how much risk they can take," Hayden says.

Hayden uses flexible hybrid funds. These hold mixes of stocks and bonds, changing the allocations to suit the times. For conservative investors, Hayden currently has 50% of assets in hybrid funds, with 25% in stock funds and the rest in fixed income.

A favorite hybrid holding is the Ivy Asset Strategy Fund, a world allocation fund. During 2005, the fund had 85% of its assets in stocks. That enabled shareholders to benefit from the bull market as Ivy outdid 99% of competitors for the year. During the first quarter of 2009, the fund only had 28% of assets in stocks, protecting shareholders from the severe downturn.

These well-timed moves enabled Ivy to return 15% annually, on average, during the past five years, outdoing the S&P 500 by 14 percentage points and surpassing 95% of world allocation competitors.

Another world allocation fund Hayden likes is the BlackRock Global Allocation Fund. The fund stays broadly diversified, owning more than 400 different stocks. While the BlackRock fund had 60% of its assets in stocks during the bull market year of 2005, the fund lowered the allocation to 47% as markets collapsed in the first quarter of 2009. During the past five years, BlackRock returned 8.6% annually.

Hayden expects the economy and stock markets to improve slowly into next year. He's betting his hybrid funds will position shareholders to profit from better times.

-- Reported by Stan Luxenberg in New York.

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