What is an exit strategy?
An exit strategy is a carefully planned way to liquidate assets if needed and can be because of either because of positive or negative reasons.
Where have you heard about exit strategies?
You may have heard about exit strategies when looking to invest in a company, such as a start-up. Most venture capitalists will need to see a well thought-out exit strategy included in any proposed business plans before they’ll agree to part with any funding.
What you need to know about exit strategy.
One reason you may need an exit strategy is if your investment isn't performing as well as you'd hoped. Or it could be that there's been a major financial event, such as the financial crisis and you're keen to protect your assets. You may also need to activate your exit strategy for personal reasons, such as needing more cashflow or something like a divorce settlement.
But exit strategies aren't just for when things go wrong. They should also be used when investments have done well and met their profit objectives. Having an exit strategy in this instance can be very useful as it takes the emotion out of the investment and can prevent you from hanging onto a stock that has already reached its target profitability in the hopes of gaining an even greater yield.
Find out more about exit strategy.
If you are trading securities then planning out an exit strategy is particularly important for both profit and loss sides of your trade.