Otherwise known as your ‘exit strategy’, deciding upfront where your personal back door is on any investment is helpful in removing unproductive emotion from big decisions.
While emotion might be one tool you use when making investment decisions, making decisions based on your emotions alone is a risky path.
So when it comes to investing, always start out with the end in mind and try to determine where or what will trigger your exit strategy, or need-to-get-cash-now point.
It’s not hard figuring out where your exit point is and it will usually fall into one of four options:
- 1. Linked to time
For example, deciding to sell your investment in five years.
- 2. Linked to value of the investment
Deciding to sell your investment when it increases by 20 per cent, or falls by ten per cent.
- 3. Linked to a trigger event in your life
I will sell my share portfolio when I have enough money for a 20 per cent deposit on my first home.
- 4. Not to exit
Continuing to build your share and property portfolio to ensure a passive income stream into retirement.
Having an exit strategy is a great way to clarify your reasons for deciding to make a commitment to a particular investment, but… And here’s the important but… It does not mean you stick to it no matter what.
Life is constantly changing in unexpected ways and it’s important to maintain flexibility.
When your exit strategy date or trigger event arises, simply assess your situation and decide whether exiting at that point is the best decision to make at that point in time.
Similarly, there may be times when you have to exit earlier than planned, so be prepared for this too.
So, by having a clear exit strategy you can learn to trust your emotions and use your intuition alongside your intellectually-based research and to make better decisions more quickly, potentially saving yourself time, trouble and money.
Knowing where the back door is not just for commitment phobes, it’s for astute and thoughtful investors too.
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