After you have an automobile accident, you might be a little more cautious when you're driving. But you probably aren't going to sell your car and start taking the bus.

You can apply that same logic to investing.

Following the market's two-year tumble, you know how important it is to protect your assets. But you can do that by spreading your money around in different sectors and asset classes -- not by piling it into a CD that has minimal returns. If you're too conservative, you could miss much of the upside when the market eventually comes back.

To be sure, plenty of people aren't scared of the stock market. Investors put $29.3 billion in new money into stock funds during March, the largest monthly inflow in two years.

But if you've been spending your time trying to find the best money-market rate, maybe you're being a little too cautious.

Here are three more signs that you've taken risk aversion to the extreme.

Every Investment You've Made in the Past Year Had FDIC Insurance

If you have money that you can't afford to lose, funneling that cash into a certificate of deposit or money market account is a good idea. These investments will protect your principal. If you're planning to buy a house in a year or two, safeguarding that cash is your greatest concern. But a money market account isn't going to make much money in the long run.

By investing exclusively in low-yielding money market instruments, you won't lose your investment, but you'll make little or no money after inflation and taxes. "They defend you against one kind of risk but leave you open to another kind -- risk to your income flow," says Weston Wellington, vice president with Dimensional Fund Advisors in Santa Monica, Calif. "The taxable investor is behind the eight ball."

That's especially true today, with the yields on money market accounts near record lows. The average money market account, which is insured by the Federal Deposit Insurance Corp., yields 1.07%, according to

Bankrate.com. The average money market fund, which doesn't come with that insurance, is yielding about 1.4%. Inflation, however, is running at about 1.5%.

"The danger you face with being too conservative is that you aren't generating sufficient income in the context of inflation," says Greg McBride from Bankrate.com. "You aren't keeping pace."

If you can take on a little more risk, try looking for slightly higher yields in bond funds. But be careful. When interest rates move higher -- which they're expected to do -- bond prices fall. And the value of a bond fund can also drop. The longer the maturity, the greater the interest rate risk. So you should stick with a high-quality, short-term bond fund.

By holding short-term, high-quality securities, these funds shouldn't drop dramatically if rates rise sharply. And a short-term bond fund will deliver a better yield than the average money market account. The

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Vanguard Short-Term Bond Index fund, for example, is yielding 4.63%. (Vanguard offers several low-cost short-term bond funds, such as its

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Short-Term Corporate or

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Short-Term Treasury funds.)

Another option: an ultrashort bond fund such as the

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SSgA Yield Plus fund. These funds typically own government and corporate bonds with maturities of less than 12 months and should be less volatile than a short-term bond fund. But the yield should still beat what you can get in a money market these days. That SSgA fund is currently yielding 1.84%.

The Stock Market Has Ceased to Exist

Maybe you've already developed a passion for bonds and you've spent the past year or two ignoring the stock market. But if you have several decades to invest, you probably don't want

all

of your money in bonds.

The reasoning is this: You get paid more for taking risks. And stocks over, say, a 20- or 30-year period should deliver better returns than bonds. From 1970 through 2001, a portfolio with 60% in cash and 40% in bonds produced an average annual return of 7.5%, according to data from Charles Schwab. That's not bad. But a portfolio with 5% in cash and 95% in large-cap, small-cap and international stocks returned 11.91%. If you're investing to make money, stocks make more sense.

Of course, you shouldn't expect to see 20% annual gains from the stock market in the coming years.

All Your Money Is Going Into Value Funds

Perhaps you haven't given up on investing in the stock market altogether. Instead, you've developed a fixation on value funds, and that's where you've been putting all your money. One reminder: Growth stocks will eventually come back.

Yes, value has been the place to be lately. The Russell 3000 Value index, a broad index of small to large value stocks, is up 2.4% this year. The Russell 3000 Growth index is down 9.6%. And value stocks tend to be less volatile than growth stocks. But over long periods of time, the performance of growth and value is about the same.

When one style is in favor, the other is out of favor. But rather than betting on one style vs. another, you're better off investing money in both. "Trying to time those entry and exit points is an exercise in frustration," says Dimensional Fund Advisors' Wellington.

Needless to say, that piece of advice goes back to the one lesson that everyone has learned in the past two years: diversify.

In keeping with TSC's editorial policy, Dagen McDowell doesn't own or short individual stocks, nor does she invest in hedge funds or other private investment partnerships. Dagen welcomes your questions and comments, and invites you to send them to

Dagen McDowell.