Did you know that the stock market actually went up last year? If so, you may be in the minority. Apparently, a good number of investors are still hiding under their beds with their fingers in their ears when it comes to actually figuring out what's going on in the market today. And if this recent information accurately mirrors wider investor sentiment across the nation, we've got a long way to go in getting people to face their fears and invest rationally.

In the dark
According to a recent survey conducted by Franklin Templeton Investments, 66% of survey respondents actually thought that the stock market was negative or flat last year. In truth, the S&P 500 was up roughly 26%. Only 28% of those surveyed knew that the market had risen in 2009, while 6% were not able to say what direction the market took last year.

So how could so many people have absolutely no idea what was going on in the market, especially during such a booming rally? I'd chalk it up to one of the greatest enemies of investors everywhere -- short-term thinking. Behavioral studies have shown that investors tend to overemphasize near-term events, giving them more importance in their minds, and extrapolating them well into the future. So last year's bear market lows live on in investors' memories, and they stick to their preformed beliefs, rather than checking out what's actually been happening in the real world.

Follow the leader
Of course, this short-term thinking highlights yet another self-defeating investor trend – chasing performance. This is the tendency to jump into whatever stocks or asset classes have been doing well lately, assuming they will continue to outperform, and likewise ditching investments when they disappoint in the short-term. Of course, in practice, this rarely works out for investors.

For example, take the fund named the Best Stock Fund of the Decade late last year -- CGM Focus (CGMFX). This concentrated fund posted an impressive 17.9% return from 2000 to 2009, compared to a loss of 1% loss for the S&P 500 Index over the same time period. However, the 10-year investor return, or the average return that investors buying the fund actually experienced, was a shocking 11% annual loss during that time, according to Morningstar data.

That's because investors chased performance and bought and sold the fund at the exact wrong times. By focusing too heavily on short-term events and ignoring the realities of the market, they managed to lose money in a winning fund.

Standing firm
Even if you're one of the 28% of investors who actually knew what was going on in the stock market last year, you can still learn something from other investors' mistakes. First of all, don't assume that yesterday's hot investment will be tomorrow's big winner. According to the very same Franklin Templeton survey, almost 60% of respondents incorrectly believed that gold would have provided a better total return on investment than stocks over the past 30 years.

Of course, there are gold- and precious metals-related companies worth owning. Freeport McMoRan Copper & Gold (NYSE: FCX) and Pan American Silver Corporation (Nasdaq: PAAS) both merit a closer look, since both are cash-generating machines right now. Freeport McMoRan boasted free cash flow of nearly $5.2 billion over the last 12 months. The much smaller Pan American Silver clocked in with free cash flow of $63 million, marking its first year of positive free cash flow since it was founded in 1994.

But don't load up on gold in your portfolio, thinking you're going to make a killing. If you simply must have some exposure to gold, SPDR Gold Shares (NYSE: GLD) is one of the cheapest and most long-standing gold ETFs around. Just keep your allocation to less than 5% of your portfolio.

Where to find income
Likewise, don't make the mistake that millions of investors have made for the past 18 months: fleeing the stock market for the perceived safety of bonds. Folks who have done that have pretty much missed out on the rally of the past year. If you're too heavy into fixed income right now, consider a slow move back into the equity market, perhaps by picking up a broad-market ETF like the SPDR S&P 500.

If you're looking to snap up some individual names, consider the large-cap dividend-producing universe. Dividend payers should give your portfolio an extra boost in what is likely to be a slower-return environment in the coming year or two.

In particular, Procter & Gamble (NYSE: PG) has managed to actually grow its unit volume in a soft retail environment, and it should be able to maintain its profit margins even if future economic growth proves elusive. Similarly, Kraft Foods (NYSE: KFT) also has some of the most recognizable consumer brands in the world, and with its current restructuring and brand extension efforts, it's likely to remain a strong competitor and stable dividend producer in this field for some time to come. Lastly, Johnson & Johnson (NYSE: JNJ) has an extremely diverse revenue stream, including pharmaceuticals, medical devices, and consumer goods. The firm's stake in Elan Pharmaceuticals and partnership deal with Gilead Sciences should provide additional growth opportunities for the company going forward.

All three stocks sport dividend yields in excess of 3%. Moreover, their valuations are reasonable, even after the big rally.

The next time you think about jumping on an investment trend or following the crowd, just remember that a good number of those people may not even know something as simple as what the market has actually been doing in the past year. That's not the right kind of knowledge base from which to make investment decisions. Instead, keep your focus on the long-run and stick with your own investment plan. And maybe it wouldn't hurt to pick up a newspaper every now and then, either.

Been in the dark for a while? Read why Fool contributor Matt Koppenheffer thinks that Congress needs to fix this now.

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Amanda Kish is the Fool's resident fund advisor for the Rule Your Retirement investment newsletter. At the time of publication, she did not own any of the funds or companies mentioned herein. Elan is a Motley Fool Rule Breakers selection. Motley Fool Options has recommended buying calls on Johnson & Johnson, which is a Motley Fool Income Investor recommendation. The Fool owns shares of Procter & Gamble, which is a Motley Fool Income Investor recommendation. The Fool has a disclosure policy.