Avoid common investing mistakes

(MONEY Magazine) -- Instead of going with the pack or panicking at every news headline, think before you sell (or buy) and you'll likely reap much richer rewards.

This is part of a special report on 101+ ways to build wealth. In this story, readers and experts weigh in with advice on how to avoid common investment mistakes that cut into your chances of reaching your goals

Keep your emotions in check. A recent report from Barclays Wealth identified four of the most common mistakes people make:

Focusing on single investments rather than the big picture. Consequence: not being appropriately diversified

Concentrating on a short-term time horizon. Consequence: mistiming the market

Taking more risks when comfortable and less risks when not. Consequence: buying high, selling low

Taking actions in hopes of gaining control. Consequence: high fees from trading too frequently

Don't flee with the crowd. In the past year nervous investors have pulled $170 billion out of stock funds, while pouring money into bonds. But over all the 20-year rolling periods since 1926, a 50/50 stock-bond portfolio -- what conservative target-date funds suggest for near-retirees -- delivered annualized returns of 8.7%, vs. 5.5% for a 100% long-term government bond portfolio.

Avoid jumping in and out. Buying and selling on the news is a sure path to sub-par returns. Market gains have tended to come in short, sharp spurts. So by the time you realize an advance is under way, the best of it is over.

Need proof? Let's say you started out in 1996 with a $10,000 investment in an S&P 500 index fund. If you left the money in the market, you'd have had $22,170 at the end of 2011, based on Allianz returns data.

If you'd missed the 10 best trading days, you'd have $11,040. If you missed the 30 best trading days, you'd only be left with $4,550. Better to stick it out in the market. (Of course, if you missed the worst days you'd do pretty well too -- but to time those, you'd have to be psychic.)

Ratchet down your ego. To avoid the costs of being cocky, financial planner Carl Richards, author of "The Behavior Gap," suggests second-guessing yourself. Ask: If I do this and am right, what impact will it have? If I'm wrong? Have I been wrong before?

Skip the flavor of the month. Last August, when it felt as if the sky was falling after the debt-ceiling debacle and the realization that Europe's crisis wouldn't be resolved quickly, 34% of Americans told Gallup that gold was the best long-term investment. Stocks got just 17% of votes. Back then, gold was on a tear and equities were tumbling.

Since then, gold prices are down 10%, while the S&P 500 is up 10%. Longer term, gold's performance is anything but shiny, while stocks have delivered annualized gains of 9.8%. So close the browser and remind yourself of your long-term plan.

Don't be so quick to erase the mortgage. While paying off your credit card ASAP is Personal Finance 101, it's not always better to pay off your home loan faster than needed.

"Between low rates and deductibility, there are better things to do with your 'extra' money," says T. Rowe Price planner Stuart Ritter.

If you put an added $100 a month toward a $100,000, 30-year mortgage at 5%, you'd pay the loan off in 21 years. But invest that $100 a month for 21 years with an annual return of 7%, and you'd have $57,000 enough to pay off the remaining $45,000 loan balance, with a lot left over.

Reader advice: Take tips with a (large) grain of salt. "Following the latest stock tip is a sure way to avoid the steady gains a diversified portfolio offers. A tip from an acquaintance is just interesting conversation." -- David Thompson, League City, Texas

More 101+ ways to build your wealth:

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