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"I am out of stocks completely," says Hoffman, who reinvested the money in assets he perceives as less risky. Sixty percent is now in bonds. Thirty-five percent is invested in pre-1932 Saint Gaudens gold coins. The rest is in cash.

Hoffman has plenty of company when it comes to reducing exposure to stocks. The percentage of U.S. households that own individual stocks or stock mutual funds dropped to 46.4% last year, down 13 percentage points since 2001, ICI data show.

And while younger investors with longer time horizons continue to hold hefty weightings of stocks in their 401(k)s, investors in their 40s, 50s and 60s have cut their holdings. Fifty-one percent of people in their 50s had more than 80% of their money invested in stocks in 2000. At the end of 2010, only 25.5% had such stock-heavy portfolios.

Mike and Arlene Armstrong are part of the growing army of investors who have sold stocks to cut risk.

"We panicked several years ago when the market tanked and our stocks were worth one-third less," says Arlene. "With some knuckle-biting, we stayed the course. When our stocks regained their value this past year, we sold most of them and put the funds into less-risky investments. We were relieved to have our money back."

Touting the stock market

Individual investors have been net sellers of stock funds during a period in which the stock market has soared. The Standard & Poor's 500-stock index is up 102.4% since it hit bottom in March 2009. The broader Wilshire 5000 index is up 109.6%, or $9 trillion.

In the past few months, a handful of Wall Street's most influential players have also come out and said that given a choice between buying stocks or bonds, stocks are the way to go:

In February, Buffett said that over an extended period, stocks -- not bonds or gold -- will be the "runaway winner."

Around the same time, Larry Fink, CEO of BlackRock, the nation's largest money-management firm, with more than $3.5 trillion under management, told Bloomberg News that investors should be 100% invested in stocks. A yield of roughly 2% on the 10-year Treasury bond is too paltry. Compared with bonds, stocks are more attractively priced and offer better upside, he argued.

Goldman Sachs made a similar call in late March, arguing that "the prospects for future returns in stocks relative to bonds are as good as they have been in a generation."

So far, individual investors are mostly ignoring the advice.

"They are stuck on the sidelines and won't come back in any time soon," says Woody Dorsey, founder of Market Semiotics, a firm that specializes in investor psychology.

Stuck in the recent past

So what's scaring investors?

Their emotions are getting in the way, says Denise Shull, author of Market Mind Games: A Radical Psychology of Investing, Trading and Risk.

Many investors are suffering from a behavioral finance concept known as "recency bias" -- they fear another market crash.

"People are not taught to analyze their emotions," explains Shull. "And without asking what I am feeling and why, they never get to disentangle emotion from their decision-making. They are not getting in because of anxiety. A reduction of anxiety and fear would help."

Changing demographics are also playing a role in investors' shift to less-risky investments, says Brian Reid, the ICI's chief economist. As Baby Boomers age and enter or near retirement, the need for income and capital preservation increases, reducing the need for a heavy weighting of stocks.