(Money Magazine) -- During the stock market's wild ride, mutual fund investors went off the rails.
From mid-2008 through March 2009, when the S&P 500 fell 36%, they pulled $250 billion out of equity funds.
Then, as stocks churned out a 63% gain through the end of 2010, investors stayed shy.
It wasn't until early this year, with the S&P 500 up nearly 100% from its 2009 low, that savers regained an appetite for stocks.
"Bailing in 2008 was the first mistake, but now many are compounding it by coming back in when the market is much higher," says financial adviser Frank Armstrong of Investor Solutions in Coconut Grove, Fla.
If you too ran at the sight of failing stock prices, you're not alone. In MONEY's survey of advisers, 44% pointed to "fleeing stocks when the market craters" as a top mistake.
Right behind it was "flocking to the latest top-performing investments," which helps to explain why bonds got all the love after trouncing stocks in 2008 and tech stocks were wildly popular in 1999, the year they rose 86%. 'My biggest money mistake'
Buying and selling at the wrong time is sure to erode your earnings over time. As stock funds eked out an annualized 1.6% return for the 10 years through 2009, the typical fund investor managed just a 0.22% gain, according to Morningstar.
On a $100,000 investment, that's $15,000 less in your pocket. Indeed, as the graphic above shows, holding your ground during the financial crisis paid off. By continuing to invest every month, you would have done far better than if you'd bailed out of stocks after prices started to fall.
Among retirees, a loss has 10 times the impact of a profit. One look at your brutal 2008 year-end brokerage account statement made staying the course excruciatingly hard.
"We are always extrapolating that recent past events are what will happen in the future," says Meir Statman, a finance professor at Santa Clara University and author of "What Investors Really Want."
The more intense the experience, the longer its impact lingers. Sure enough, the fear you felt a few years ago is hard to shake. "When we're afraid," says Minneapolis financial planner Ross Levin, president of Accredited Investors, "we are more prone to behave in ways that aren't in our self-interest."
"The biggest mistake I see right now is people treating all their money as short term," he says. "There's no way you reach your long-term goals with everything invested for the short term."
Map out an emotion-free comeback. If you retreated during the bear market, don't compound the problem by reinvesting all your cash just as stocks are looking pricey again.
Levin recommends this two-pronged system: Space out monthly investments over the next 12 to 18 months. Plus, anytime stock prices fall more than 3% to 5%, commit to putting more money to work. At today's prices, that's roughly a 400- to 600-point drop in the Dow.
Ban yourself from your portfolio. If you can't overcome your tendency to overreact, automate. By signing up for your 401(k) or 403(b), you're already doing that. Set up the same system to transfer money automatically from checking to your brokerage and fund accounts.
Hire a designated driver. If you still can't ban emotions, rely on a financial pro who can. "Paying someone 1% a year to keep you from making 1.5% worth of mistakes can make a lot of sense," says Statman. Have a money question? Ask The Help Desk
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