The Exit Strategy

One often overlooked aspect of investing that I see as a CPA is people lacking an exit strategy. What is an exit strategy, you might ask? That’s a great question. An exit strategy can take many forms, and it ultimately comes down to your personal goals and investment approach. Allow me to explain.

I’ve come to view investing as a process with three distinct phases:

Phase 1: Creation

Phase 2: Maintenance

Phase 3: Exit

Phase 1: Creation begins with building a portfolio that is properly allocated between stocks and bonds in a way that aligns with your risk tolerance. (Side note: If your head is spinning and you’re cursing me for the financial jargon, I highly encourage you to read my earlier article, "Balancing Risk Tolerance and Capacity for Investment Success.")

Over time, as your investment needs change, your portfolio will likely evolve as well. This brings us to Phase 2: Maintenance. Part of this phase involves reallocating assets based on your current lifestyle and financial goals. For example, if you have children, you may not be in a position to take on as much risk as you did in your younger years. As such, you might shift your investments toward safer alternatives. While this approach offers less upside, it also protects you from holding the bag if the market crashes.

But what about Phase 3: Exit?

A typical financial advisor might help you reallocate your portfolio and assure you that you’re on track for retirement, but then... their guidance often stops. This is why having an exit strategy is so important. In my opinion, it’s also the most exciting part of investing. It’s the phase where you actually get to do something with your hard-earned cash!

Many people assume that exiting an investment and retirement are synonymous. Don’t get me wrong—retirement is a great goal and is part of an exit strategy. It is not, however, a full proof plan. Think about it - What kind of life is it if you spend decades working just to retire without a plan for what comes next? Put another way, once you do retire, what do you actually want to do with your money?

I urge my clients, regardless of their stage in life, to start thinking about their financial goals beyond just accumulating wealth and retirement. When you reach a financial milestone, what’s the next step?

• Reinvest? Maybe.

• Move to another investment? A solid option.

• Spend without guilt? Also a great choice!

My two cents: Start by outlining a short-term, medium-term, and long-term exit plan for your money. Choose goals that challenge and inspire you—then write them down and dream big. Personally, I like to include a charitable component. After all, what’s the point of wealth if you can’t share it with the people and causes you care about? Wherever you keep your investment records, add these your notes and ideas to the folder. You can label it "Investment Folder." Then, revisit them regularly (at least quarterly) on your own, with your partner, and/or with your financial advisor if you have one. Remember, your exit plan doesn’t have to be perfect, and there’s no single “right” answer.