Pat Carter is weeks from retiring and facing the financial struggle she will encounter for the rest of her life because of risks she inadvertently took that threw her into the predicament.

In 2000, about eight years from retiring, her good intentions backfired.

With $2,000, she opened a Roth individual retirement account and followed a broker's suggestion - putting the full amount into a high-risk, aggressive stock mutual fund. She had been told that Roth IRAs were smart to have, and a broker picked the fund.

But within weeks of making her investment in the Putnam Discovery fund, the stock market began to crash and stock funds like the one Carter's broker selected sank more than most. Carter did not understand stocks or know why she was losing money, but as she watched her money evaporate, she concluded that Roth IRAs were dangerous, and she never invested in her Roth again. She sent me an e-mail recently to warn about her mistake.

Now, her original $2,000 investment is worth about $1,040, and at age 66 she has just $55,000 for retirement.

She is learning, as many do when retirement creeps up, that risk is a tricky concept.

Her actions are predictable, said Christopher Jones, chief investment officer of Financial Engines and author of

The Intelligent Portfolio: Practical Wisdom on Personal Investing From Financial Engines

.

Most people do not know how to invest money. Financial Engines, which provides advice for 401(k) investors, says only about 10 percent to 20 percent of people are investing retirement savings correctly. Fidelity puts the number at about 30 percent.

Handling a 401(k) or IRA well means investing in a variety of stock funds and bond funds, so the mix helps grow money, rather than lose it abruptly like Carter did.

For example, financial planner Jeff Kostis said a conservative person with 10 years to go might put about 50 percent of retirement savings into a bond fund, which is a safer choice than a stock mutual fund. To make the money grow moderately, without the risks Carter took on, the rest would go into a blend of stock funds.

The variety: 25 percent in a fund that invests in large U.S. stocks, known as a large-cap stock fund; 10 percent in a fund that invests in smaller companies, a small-cap stock fund; 10 percent in a foreign fund that invests in stocks around the world; and 5 percent in a fund that invests in real estate investment trusts, known as REITs.

If Carter had done this, her $2,000 would be worth close to $3,000 rather than $1,000. If she had contributed the maximum into her Roth IRA each year, she could have roughly twice as much money.

Psychology also works against people, said Terrance Odean, a University of California-Berkeley finance professor who researches behavioral finance, or the psychology behind investing decisions.

A common problem, he said, is "uncertainty aversion." Faced with decisions they do not understand, "people throw their hands up in the air."

People who are close to retirement are the most vulnerable if they throw up their hands, said William Bengen, an El Cajon, Calif., financial planner.

Bengen said people in their 20s and 30s can be entirely invested in stock mutual funds, regardless of market conditions. And people in their early 40s can be 80 percent invested in stocks.

If they are like Carter and scared when they see a fund decline, he said, they should put some cash into a money market fund temporarily and redeploy it into stocks when they are feeling safer.

"But don't rely on any investment vehicle to turn small savings into a fortune," Bengen said. "It's not the '80s and '90s anymore, with 17 percent returns."

Gail MarksJarvis is a personal-finance columnist for the Chicago Tribune. Contact her at gmarksjarvis@tribune.com.