Women's Greatest Financial Regret -- and How to Avoid It

We all have regrets in life, whether it's not pursuing a dream career or buying too expensive a home. But when it comes to women, there's one point of remorse that seems to trump all others: not investing more. In fact, 41% of females identify this as their single greatest financial regret, according to new data from Merrill Lynch and Age Wave.

Now, if you're an older woman who lost out on years of returns by not investing, you may have, unfortunately, already sealed your own fate to some degree. If you're younger, however, you have a real opportunity to do better.

The importance of investing

Why is investing so crucial? It boils down to one important concept: compounding. Compounding is what allows savers to turn smaller amounts of money into larger sums over time, and it's a key component of building a nest egg. And incidentally, that's something women can't afford to fall down on, especially with their likelihood to live longer than men and therefore need larger levels of savings in retirement.

So let's imagine you're 37 years old with the goal of retiring at 67, and you're currently setting aside $300 a month to meet that goal. If you keep that money in cash, you'll maybe see a 1% return on it if you're lucky. Over a 30-year period, that would leave you with $125,000.

But watch what happens when that money is invested instead. If we apply an average annual 7% return, which is still below the stock market's average, that $300 a month over 30 years becomes $340,000. And that's clearly a lot more money to live on.

Now, the opportunity to retire with more money rather than less should be motivation enough to get you investing, but in case not, here's something else to consider: Without investing your savings, the money you sock away will lose buying power over time, thanks to inflation. In fact, one major problem with Social Security today is that it does a poor job of keeping pace with inflation. As an individual who stands to collect benefits in the future, that's not something you can control. But what you can control is the way you invest your own savings, and the sooner you do, the better.

Getting started with investing

There's no right or wrong way to invest your money, but as a general rule, you'll grow the most wealth with stocks as opposed to bonds. This isn't to say that you should load up your portfolio only with stocks, but rather, that you should put the bulk of your savings into stocks, especially when you're young and have time to ride out the market's ups and downs.

If you're eager to get started with stocks, you can consult this guide for beginner investors. Meanwhile, this guide to bond investing will help you learn more about how bonds work.

Within each investing category, you'll want to diversify your holdings to protect yourself from extreme market conditions. You can accomplish this a couple of ways -- either by loading up on stocks and bonds from different sectors (think energy versus biotech versus retail), or by buying stock and bond funds. The benefit of the latter is that your investments will generally move with the market, and you won't have to spin your wheels quite as much on research (though you should always research any investment you're thinking of adding to your portfolio).

From there, it's mostly a matter of keeping tabs on your investments regularly to ensure that they're helping you meet your goals. Of course, you may have a year when a particular investment loses money, and that's to be expected. (Though having a stock or bond you own decline in value at one point in time shouldn't serve as a trigger for you to unload it, since in doing so, you'll lose money.) But you should make sure that, generally speaking, your investments are going up, not down, and at a growth rate that allows you to accumulate wealth in time for retirement. Remember, if you own an index fund that's returning 4% per year over several years, which is well below the market's average, you may want to replace it with something else.

The last thing you want to do is approach retirement full of financial regrets -- so don't let that happen. Save aggressively, but also, invest the money you're socking away so that it ends up working for you. You'll be thankful you did when you're older.

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