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Do You Have an Investing Exit Strategy?

Buying stock is exciting. Whether it’s for your eventual retirement or its something you’re trying to make money on now, there’s so much potential in every purchase.

Most people have strategies for buying stock. Maybe they’re like me and have a list of index funds (stock, bond, etc) that they want to be invested in. Buying could be as simple as adding more shares to a preselected portfolio.

Others like to chase the next big winner and spend their pre-buying time doing research. Some just buy based on CNBC or Mad Money.

You’ve got some sort of buying strategy or philosophy. But do you have a selling strategy?

Right now, my selling strategy is “This is all for retirement, so we’ll work it out about 10 years before that, get everything straight.” Of course, if I decide to invest for anything else, I’ll need to work out a selling strategy for those purchases.

Why have a selling strategy? Because you don’t actually make any money until you sell the stock. You’ll want a good plan so that you don’t find yourself selling randomly, without consideration because you need the money now. Instead, you want to sell when the stock reaches your goals or comes back down to $3 above what you paid for it (so you can still get out with a profit).

Do you have an exit strategy for your investments?

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{ 7 comments… read them below or add one }

PiggyBankBlues April 30, 2008 at 2:46 pm

my exit strategy is like yours, when i’m old and gray.

i’ve made some mistakes, though, and i have no shame in my game- so i’ll dump those if i see trouble that a company can’t recover from over the long haul.

some people hold on too long, it’s a tough balance when you’re investing for long term gains. few companies last that long, which is why i also like index funds.

The Family CEO April 30, 2008 at 4:34 pm

My strategy is like yours for now: we’ll figure out as retirement draws nearer. It’s a good question, though, and one I’m thinking increasingly about as I get older.

Aryn April 30, 2008 at 4:54 pm

When I invested in the past (pre-grad school), I would set a target I wanted to reach and then sell when I hit it unless it was in a sector that was really zooming. In that case, I monitored the news and sold when I felt it might be turning.

Unfortunately, this was also pre-dotcom bust, so I took a hit on a couple stocks that were hard hit by the sudden crunch, but I was well-diversified, so it wasn’t that bad. Because they looked like wouldn’t recover soon, I waited until almost the end of the year and then sold them to recover the losses to balance out the taxes on a steep gain I had on another stock.

Becky@FamilyandFinances April 30, 2008 at 7:24 pm

I know that I’ll slowly invest more conservatively as I get closer to retirement age. We invest in a lot of growth funds now, but we’ll invest in more growth & income funds and bonds as we get into our 50’s and 60’s.

fathersez May 1, 2008 at 2:16 am

Exit strategy is one compulsory item in the evaluation of every investment by corporates.

At a personal level we always miss this out, having some sort of vague notion that we’ll sell when it has doubled or risen by 25% or something like that.

Holding it till we are old and gray is a good strategy, I think. Even Warren Buffet does this.

Ryan May 2, 2008 at 8:52 pm

To me, the best exit strategy is to not exit; the ideal is to live off the dividends and interests. The way tax brackets for singles like me are now, $60K of dividends would land you in the 15% tax bracket but $60K of earned income clearly in the 25% bracket. I’d do better on my taxes by far!

Avatar July 27, 2008 at 12:18 am

I think you brought up an interesting topic here. One should definitely have an exit strategy when investing in stocks.

Just think about the 2000 dotcom bust.

Personally, I prefer to set a limit to my gains. Once I hit, say a 30% gain, I’d sell some shares to recover my capital partially.

Seeing share prices zoom up is fun. However, there are just pieces of paper if you don’t cash them in.

Remember Enron and WorldCom. What about Bear Stearings and CitiBank?

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