(Bloomberg News) Paul Smith, a retired attorney in Oakton, Virginia, lost 30 percent of his 401(k) retirement savings during the financial crisis.

He shifted to bond funds from stocks and now holds at least 60 percent of his retirement savings in fixed income. While payouts from some of the bond funds barely keep up with inflation, Smith said, he's worried that stocks could see another decline.

"Both my wife and I are very risk averse," the 64-year- old said in an interview. "Frankly, the volatility in the market is very much a concern to us."

Investors like Smith have poured $982 billion into U.S. bond funds from January 2008 through August while pulling $439 billion out of equity funds, sacrificing a 115 percent rally in stocks from their lows for the perceived safety of bonds. Money managers and fund executives such as Pimco's Bill Gross and BlackRock Inc.'s Laurence D. Fink are warning that the flight to bonds leaves savers exposed to a new round of losses once interest rates rise, a risk many retail clients aren't aware of.

While investors who hold bonds until they mature don't lose money unless the issuer defaults, mutual funds and other holders who trade the securities to maximize yields can suffer losses if interest rates rise. Long-term Treasuries had almost as many losing years as stocks in the past 85 years, and fared worse than equities by that measure when adjusting for inflation, according to Chicago-based Morningstar Inc.

'Greatest Irony'

"The greatest irony here is the perception of safety in a fixed-income security," said Mitchell Stapley, chief fixed-income officer at Cincinnati-based Fifth Third Asset Management. "As the head fixed-income guy here, when I look at bonds today, they scare the hell out of me."

In 1994, when the U.S. Federal Reserve raised its target rate six times, bond funds on average lost 4.6 percent, according to Morningstar. Investors pulled $62.5 billion from the category that year, compared with deposits into equity funds of $114.5 billion, according to the Investment Company Institute, a Washington-based trade group that represents the mutual-fund industry.

From 1926 through 2011, U.S. long-term Treasury bonds had losses in 22 years, compared with 24 years for stocks. When adjusting for the impact of inflation, long-term Treasuries lost money for investors in 33 years, more than the 28 years for stocks. And while losses in stocks tend to be bigger -- they declined an inflation-adjusted 37 percent in 1931 and 2008 -- the record-low interest rates of the past year have increased the potential for large, abrupt declines in bonds.

'Significant Losses'

In 2009, when stock markets hit their bottom and the economy started to rebound, long-term Treasuries declined 17 percent after adjusting for inflation, their worst year on Morningstar records going back to 1926.