Nervous investors have been moving their money around during a difficult 2008 that has supplied more punishment than reward.

There is cold money: Nearly $26 billion in investor dollars flowed out of U.S. diversified equity funds in the first half of the year, according to Lipper Inc.

There is hot money: About $47 billion flowed into mixed-asset funds, whose portfolios include both stocks and bonds, during that time. Another $17 billion was added to world stock funds.

With many investors playing it safe while awaiting positive signs, money-market funds gained $192 billion in assets.

"There has been some performance chasing, as we see from continued flows into international funds," said Tom Roseen, senior research analyst with Lipper. "Within the stock funds, large caps continue to be the pariahs of the capitalization groups, though small caps recently have also felt the squeeze."

Much of the increase in mixed-asset funds is because of the rising popularity of so-called target-date funds that automatically reset their asset mix as they aim toward a future goal such as retirement, Roseen said. Target-date funds have been increasingly used in company 401(k) retirement plans.

Going with the flow is often not the right decision.

"Fund outflows are a reactionary move on the part of investors, who are far more pessimistic about the future of the stock market than they should be," said Jack Bowers, editor of the independent Fidelity Monitor newsletter. "Their pessimism is, however, creating some nice opportunities in the market."

The current investment environment is not unlike the early 1980s, when many people were pessimistic about stocks and moved money out of them, Bowers said. That trend continued for years, and it is not inconceivable the same malaise could set in again, he said.

Which leads to the question: Do all those outflows indicate investors are being wise with their money or instead signify that they're making some dumb moves?

"Net outflow numbers are a contrary indicator, so it's closer to dumbness," said Russel Kinnel, director of mutual fund research for Morningstar Inc. "People's emotions lead them to make illogical and unwise investment decisions, and usually the biggest reaction to bad news is selling."

Fund flows tell you where the market has been in the past 12 to 24 months, with just about all the inflows going to funds that have strong one- and two-year returns, Kinnel said. Active investors shifting money around are often doing their driving in the rearview mirror.

"Fortunately, the vast majority of investors are doing nothing, or very little, which is probably good," said Kinnel, noting that the movement of billions of dollars in the context of the trillions of dollars invested in mutual funds overall should not be overemphasized.

Kinnel sees some worthy funds among those that have suffered outflows. Continued...