TD Ameritrade Market News (February 28, 2015 8:57 am) -- 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 (http://www.usfinancialcapability.org/downloads/NFCS_2012_Report_Natl_Findings.pdf) (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(SCHW) 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 (http://www.traderslaboratory.com/forums/attachments/30/26024-what-new-trader-needs-know-about-individual_investor_performance_final.pdf), 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 (/Brokercheck.finra.org) sheds light on some professionals' professional history, and adviserinfo.sec.gov (http://www.adviserinfo.sec.gov/IAPD/Content/IapdMain/iapd_SiteMap.aspx) offers information on an adviser's registration, clients and disciplinary records, among other details. State securities regulators can offer additional guidance (http://www.nasaa.org/about-us/contact-us/contact-your-regulator/). 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 (http://www.finrafoundation.org/web/groups/sai/@sai/documents/sai_original_content/p337731.pdf), 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. (http://www.finrafoundation.org/web/groups/sai/@sai/documents/sai_original_content/p337731.pdf).

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