Individual investors are adding too much risk to their holdings in a search for yield in today's low interest rate environment, says Fran Kinniry, a principal in Vanguard's Investment Strategy Group.

At the short-end of the yield curve, the three-month Treasury bill yields 0.2 percent, and at the long end, the 10-year Treasury note yields 2.46 percent.

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"Investors have tried to engineer a higher yield," Kinniry told Morningstar.com.

"They are overbuying dividend stocks. They'll buy stocks that have 3 to 4 percent yield. Or they'll go up the credit spectrum in fixed-income toward corporates or high-yield corporates or emerging-market debt."

This strategy carries two risks, Kinniry says. First, it has low diversification.

"Second, you are concentrating your assets in a certain style, and your bonds now look closer to equities," he said. "So if we do run into any patch of trouble [with stocks], you are unlikely to be able to preserve your assets, because all of your assets have some equity link to them."

Plenty of financial market players think stocks and other assets are in a bubble. Hedge fund star Paul Singer, CEO of Elliott Management, is one of them.

"By all measures, the U.S. stock market is currently frothy," he wrote Monday in a letter to investors obtained by CNBC.com. "Investors are pushing out the risk curve and once again piling on leverage to juice returns."

The S&P 500 index on Friday had a trailing price-to-earnings ratio of 19.5 times, up from 18.6 a year ago, according to investment adviser Birinyi Associates.

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