We have no idea what we’re doing…

By PRIYA ANAND
CONSUMER FRAUD REPORTER

MW-DD618_invest_20150116125541_ZHOver 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.

Source: Market Watch

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