MarketWatch (February 23, 2015) -- 1. We have no idea what we’re doing…

Over the last four decades, the 401(k) plan has replaced the pension as the main form of retirement plan. About 31% of workers had so-called defined contribution retirement plans in 2008, up from just 8% in 1980, according to the Social Security Administration. That means many Americans are now managing investments on which their financial well-being depends—and doing it in their spare time.

Unfortunately, many lack the basic financial literacy to be any good at investing. In a 2012 study by the educational foundation of the Financial Industry Regulatory Authority (Finra), the brokerage industry’s self-regulatory body, the average U.S. adult correctly answered only 2.9 out of 5 basic financial questions about topics like risk, inflation, interest rates and mortgages. (Only 14% answered all five questions correctly.)

The average American doesn’t follow market news that closely, either—and when you don’t know what’s going on, it’s harder to make good decisions about your money. In 2013, the S&P 500 index rose 30%. When asked in a Gallup poll a few months later how the market had performed that year, however, only 7% of respondents recalled that it had done that well; 30% thought stock prices had either been flat or gone down.

2.…but we still do too much of it

Over the past 30 years, the stocks in the S&P 500 index have produced a total return of 11.1% annually, according to research company Dalbar. But the average investor in U.S. stock funds earned only 3.69% annually over the same period.

Why aren’t fund investors getting better results? For starters, fees and expenses eat into the returns. For U.S. mutual funds, the average expense ratio is 1.23%, according to Morningstar. (For equity funds, that figure is slightly lower, at 1.21%, and alternative funds are the most expensive, at 1.92%.)

But the performance gap can also be attributed to the fact that investors buy and sell too often, as they chase trendy stocks and funds. “Every time you trade a security, every time you buy a stock or sell a stock, you’re paying a commission or some kind of sales cost. Those costs are going to eat away your returns over time,” says Gerri Walsh, senior vice president of investor education at Finra.

Trading commissions have steadily declined over time. And many financial-services companies, ranging from giants like Fidelity Investments and Charles Schwab  to the startup Robinhood, have rolled out apps that make trading about as easy as sending a text message—and sometimes free. But several studies have shown that frequent trading correlates with poor performance, even when costs are low, calling trading “hazardous to wealth.” Part of the problem: When trading means opening an app and hitting a few buttons, it’s easier for investors to buy and sell based on in-the-moment influences rather than sound strategy.

3. We don’t know what we’re paying (but it’s probably too much)

Seven in 10 401(k) participants surveyed by AARP in 2011 didn’t know that they paid fees and expenses for their plans. In fact, there are at least 28 types of fees related to 401(k) accounts, according to financial website NerdWallet.com, including management and administrative fees, trading costs and record-keeping fees. WalletHub also found that nine in 10 Americans “severely underestimate” their fees, sometimes to the tune of up to $150,000 over a lifetime.

Outside the world of retirement plans, investing fees and commissions for advice and transactions can be just as complicated. Some investors looking to cut their expenses can go virtual and entrust retirement money to automated advisers, which generally charge lower fees than traditional retirement plans and sometimes manage the first few thousand dollars of an investment account for free.

Other resources can also be helpful: Recently enacted disclosure rules require 401(k) plans to more clearly tell savers what they’re paying, for example. And investors can find out how much they’re forking over in fund fees through services like Morningstar.com, which compares a mutual fund’s expense ratio to the average figure for that asset class.

4. We’ll trust anyone to manage our money

Nearly 75% of investors told Gallup that they’ve sought professional advice to create a financial plan. But whose advice should investors take? Brokers, advisers and financial planners all have different credentials—and different obligations toward clients.

Some purveyors of financial advice operate under the fiduciary standard, which means they must put clients’ best interests first—for example, by avoiding and disclosing conflicts of interest or seeking low-cost investments.

Brokers, who buy or sell securities, often call themselves financial advisers—but they operate under separate rules. They (and some others in the industry) are primarily salespeople, and are required only to deem products “suitable” for a client based on his or her risk profile, age, investment goals and other factors. The investments brokers recommend may come with higher fees or commissions that do more for their own bottom line than for that of their clients..

Investors seeking professional help should ask advisers or brokers how they get paid, and how that might influence their suggestions. And it’s also worth asking for a profile of the adviser’s typical clients: Are they like you? A written agreement describing your relationship with the professional can help elucidate the boundaries.

By conducting a basic background check, you can also make sure the adviser you plan to hire doesn’t have a shady past. Brokercheck.finra.org sheds light on some professionals’ professional history, and adviserinfo.sec.gov offers information on an adviser’s registration, clients and disciplinary records, among other details. State securities regulators can offer additional guidance. Investors should also ask financial professionals whether other clients have filed complaints against them and then fact-check the reply with disclosure records, says Lori Schock, director of the Office of Investor Education and Advocacy at the Securities and Exchange Commission.

5. We don’t know when we’re getting scammed

About 40% of the Securities and Exchange Commission enforcement cases brought in the year ending October 2013 involved people cheating mom-and-pop investors. In many of those cases, the perpetrators promised unrealistic returns, and said there would be little to no risk. Those are among the most common signs of fraud, but most investors ignore them, lured by guarantees of higher returns.

“The one thing consumers can do if they’re called with some cold call is just to not buy whatever’s being sold. Just a blanket rule,” says Jason Doss, president of the Public Investors Arbitration Bar Association. He says if an offer sounds appealing, the investor should ask for the seller’s name and more information on the product, and call their state securities regulator for more information.

6. We grow older, but not always wiser

When it comes to managing money, older investors are at an inherent disadvantage. Even healthy people over the age of 65 show “profound declines in cognitive function” that affect their financial decision-making, according to a 2013 study in the Proceedings of the National Academy of Sciences. The study found that older adults made riskier—and poorer—choices than younger and middle-aged adults.

Older investors are also 34% more likely than investors in their 40s to lose money in investment scams, according to Finra research.

7. We’re too scared to invest much

Stocks notched dozens of records highs in 2014 as the Dow Jones Industrial Average gained 7.5% and the S&P 500 climbed 11.4%. But many Americans didn’t share in the gains. Only 54% of American adults owned stock last year, according to Gallup data, compared with a record 67% at the end of the dot-com boom in 2000.

Fear is a factor for many investors who have suffered through two stock-market crashes since 2000. After the recent financial crisis, many investors dumped their stocks and “missed the next four years of a bull run,” says Schock of the SEC. “Unfortunately, retail investors have a tendency to be very emotional with their money.”

More than 80% of investors said in a Gallup survey that they’re nervous about investing, despite the recent bull market. About 36% of people said if given an additional $10,000, they would hold it in cash, compared with 41% who would invest the extra money.

8. We tap our retirement plans too soon

When investors withdraw their retirement funds early, they face tax penalties and lose the advantages of compounding interest. But according to Gallup, 21% of investors prematurely tapped into a 401(k) plan at some time in the last five years. Some 16% of non-retired investors in the survey said they have taken loans against their 401(k) plans, and 9% have withdrawn money early. (Some did both.)

Some people find themselves raiding long-term savings accounts to meet immediate needs, and the Great Recession didn’t help, as Americans who lost their jobs found themselves needing cash. The percentage of participants in defined contribution plans with outstanding loans against the savings climbed from 22.4% in 2005 to 27.6% in 2010, an all-time high, according to Aon Hewitt, a human-resources consulting firm, and a record-high 7.1% withdrew money from their plans in 2009 alone.

“They needed the money to live on,” says Schock. “At the end of the day it’s like, any income is better than no income. I do think it’s sort of a last resort.”

9. We treat investing like a high-school popularity contest

Financial media, social media and online forums make it easy for investors to share portfolio ideas. Many researchers believe such transparency contributes to a herd mentality in investing, as people opt to buy or sell based on how a co-worker or neighbor trades. In 2008, for example, researchers found that people who live in the same community buy more stocks around the same time. In 2011, a separate study found that co-workers influence investors’ 401(k) choices.

The problem: Herd investing can lead to poor returns. “You have situations where the blind are leading the blind,” says Meir Statman, a finance professor at Santa Clara University who studies investor behavior and wrote the book “What Investors Really Want.”

Sometimes, the questionable advice comes from the talking heads on financial media programs. In one recent study, researchers examined the stock prices of nearly 7,000 companies after their CEOs appeared on CNBC. They found that investors bought those stocks on the day of the interview, driving the prices up, only to see the prices drop in the ensuing trading days. (A spokesman for CNBC declined to comment.)

10. We could put up a better fight for our money

When a legitimate investment decreases in value, leading to losses, investors pretty much have to grit their teeth and bear it: That’s one of the risks of investing. But investors who feel they’ve been cheated aren’t powerless. Those duped by a dishonest broker or fraudster who violated securities laws can attempt to recover at least some lost funds, or file complaints with regulators.

Finra accepts complaints against brokers, and investors can turn to the SEC or state regulators with issues about investment advisers. And when broker-dealers go out of business, the Securities Investor Protection Corporation helps investors recover owed securities or cash.

Finra opened about 3,500 investor arbitration cases in the year through November 2014, down from more than 7,100 in 2009. The largest number of cases last year centered on a breach of fiduciary duty, negligence, breach of contract failure to supervise and misrepresentation of securities. Investors can file arbitration claims online. But regulators say many people who believe they’ve been cheated never seek relief, whether out of unwillingness to deal with a drawn-out resolution process, the low prospect of recovering their funds, or embarrassment.

The most important thing you can do is come forward and complain,” says Finra’s Walsh. “Get to know your regulator, and complain loudly if you think something’s going wrong.”