Merriam-Webster defines “stampede” as “a wild headlong rush or flight of frightened animals.” A biological response by which herd animals avoid predators, the cruel irony of a stampede is that, regardless if it’s wild horses, wildebeests, or human beings, those running the fastest within the fray are often those most likely to end up getting hurt.

And while it’s more difficult to see a stampede in the investment world than out on the range, recent data regarding mutual fund flows from the Investment Company Institute (ICI) suggest investors might be galloping into bonds and foreign stocks at scary and unsustainable clip.

Many investors would colloquially opine that given Uncle Sam’s obscene spending and expansion of the money supply in recent months, interest rates on government bonds are impossibly low and likely to soon rise. Paradoxically, at the same moment, they are pouring money into bond mutual funds at the highest rate in history. August's $77 billion inflows, along with the rolling three-month average, are both record highs.

3-Month Rolling Sums of Net Equity Mutual Fund Flows

Source: Rosewood Research, Investment Company Institute

At the same time, three-month LIBOR, a leading indicator of short-term interest rates, sits near a record low. Essentially, investors are pouring money into bonds at a time in which many yields are at or near their most meager levels ever.

My suspicion is that now that the dust has seemingly settled from last year’s collapse, many shell-shocked baby boomers at or nearing retirement are realizing that even if they’re not a year wiser, they are most certainly a year older, and probably no longer have the risk tolerance they did back at Dow 14,000, or the first time the Dow eclipsed 10,000 back in 1999.

To that end, they’re pulling money out of stocks and putting it into bonds. Given the basic premise that an individual’s portfolio should be more heavily weighted in bonds as they get older, that fiscal conservatism seems like a no-brainer.

Yet if rates rise, as so many believe they will, bond funds, especially those holding longer maturities, will post losses. The fact that so much money is flowing into bond funds suggests that perhaps this “safe haven” might not be as safe any many believe.

The herd isn’t just galloping into bonds…but into foreign stocks as well.

Back in 1999 it was difficult to convince individual investors to invest overseas. There was zero interest in Russia, China, India or Brazil, the now widely popular “BRIC” countries, or foreign stocks in general. Many investors were burned on foreign stocks in the late 1990s as large-cap domestic names vastly outperformed.

The belief then was that, even if foreign markets offered potential for long-term growth, the real beneficiaries of that growth would be large-cap multinationals like Cisco (CSCO), General Electric (GE) and Microsoft (MSFT). Right on cue, the largest monthly inflow into domestic mutual stock funds, $36 billion, came in February 2000, just as the tech-fueled bull market reached its peak.

Since then, foreign stocks have far outperformed domestic names, and beginning midway through the decade, mutual-fund investors began to respond. Starting in September of 2004, investors have put more money into (or withdrawn less from) world stock funds than domestic funds every single month save five. As recently as August, investors plowed three times as much new cash into foreign stock funds as they did into domestic ones.

3-Month Rolling Sums of Net Fixed-Income Mutual Fund Flows

Source: Rosewood Research, Investment Company Institute

Now Americans are buying foreign stocks at a historic clip. The belief is that foreign equities not only offer higher growth prospects than those in the U.S., but also the benefit of a foreign currency kick should the dollar continue to plumb new multimonth lows.

That interest is being eagerly addressed by brokers. Just this past week Fidelity Investments announced plans to allow its customers direct access to 12 foreign markets, following Schwab (SCHW), E*Trade (ETFC) and Interactive Brokers (IBKR), all of which offer customers direct access to both foreign stocks and currencies.

Both the stampede into bonds and foreign stocks is motivated by the right trigger: price action. Investors are, simply put, going where the action is. But the fact that both bonds and foreign stocks are -- not unlike the gold trade we wrote about a few weeks back -- so uniformly popular with mutual fund investors should give any contrarian pause.

What’s so dangerous about investment stampedes is that, regardless if it's oil or ethanol, they tend to persist, which is exactly why it’s so easy to get sucked in. Given their current popularity, investors need to consider if these now-popular themes have already had their day in the sun. Fund flows suggest they have.