3 financial decisions you'll regret in retirement

With so much else fighting for our attention, it's easy to put off thinking about retirement. Regardless of your target date, here are just three things you could end up regretting when the time finally comes to quit the daily commute.

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1. Not investing enough

Notice that the focus here is on investing. That's not to say that having a rainy day cash fund is wrong. After all, no one can predict the future, particularly given that the job-for-life philosophy of previous generations no longer applies for many of us. Whether it's having enough for the occasional break in employment or paying for unexpected but mandatory expenses, having some easily accessible cash can really help. Mortgage aside, clearing any debts is also eminently sensible.

The flip side to this is that having too much cash can also be detrimental for your long-term wealth, especially with the top instant access ISA account currently paying just 1.05% in interest. With many companies offering dividend yields over five times this amount, moving spare cash into the stock market as soon as possible is a no-brainer, even more so if you can then afford to regularly reinvest rather than withdraw these payouts over many years.

2. Not sheltering investments from tax

If you're investing for retirement, the beauty of compounding -- interest being paid on interest -- means that you're likely to end up with a sizeable pot of money at the end of your working life. Unfortunately, this hasn't escaped the attention of the taxman. While the annual capital gains allowance (currently £11,300) goes some way to mitigating this, you could still face a substantial bill when it comes to selling your investments. If you're a higher-rate tax payer, that comes in at a rather unappealing 28%.

Having your portfolio in a stocks and shares ISA neatly sidesteps this problem. As things stand, you'll pay no capital gains tax on any profits you make from your holdings when they're housed in this kind of account. And with the annual allowance also rising to £20,000 from the start of the new tax year (April 6), the case for using a tax free wrapper just became even more attractive.

3. Not investing according to your risk profile/time horizon

While definitions of what constitutes high and low risk will vary, the essential idea is that you should always be trying to match your investments to how long you can afford to have your capital tied up and how much volatility you can stand in the meantime. In its simplest form, those with many years of investing ahead of them can generally afford to take on more risk than those coming to the end of their working lives as the former have more time to compensate for any losses that happen along the way.

This doesn't mean that a young investor should automatically steer clear of defensive stocks or bonds. Indeed, taking on more risk than you're comfortable with is decidedly un-Foolish. That said, it's an uncomfortable fact that the biggest gains tend to be positively correlated with investments where the potential for capital loss is greater. When it comes to equities, think smaller companies, high growth stocks and emerging markets.

So, if you're looking to generate life-changing wealth and have time on your side, the more adventurous path could be the one to take.

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Paul Summers has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.