Exit Stage Left

I may have said previously that an exit strategy is an important to have prior to investing.

If your investment has a goal, then you would know when your money has achieved its purpose.  If you are investing without a purpose, then you are going to be at the mercy of the market.  Which is where I find myself today.  As the market nears its first 16,000 closing, I expect a retraction to a significant degree (sooner than later).  Unfortunately, when I dumped more money into the under-priced market, I did not have a plan for that money.  Now that I expect the markets are over-priced, I want to pull the profits out, but I did not have a plan for this point, so I find myself in something of a quandary.

I have considered many options.  One, I can open a new fund that hedges against the other fund and allocate between those funds annually.  Two, I can take the money (or just the profits from the past 3-5 years and leave the principal) to buy a new vehicle or reinvest in home improvements.  Third, I can let it ride and stay at the mercy of the market.

Obviously, the third option is my last preference but it requires the least effort.  Effectively, that option signals my choice to not decide.

The second option is strong, but it will effectively be reinvesting the money in myself.  I once invested in myself immediately upon graduating from college, and I found out that was a terrible investment, so I have stayed to investing in others with my fair share of the profits.  (Granted, that statement does not hold up since I invested in myself by going back to school in 2011.)

The first option may be the best since it will allow me to keep the money working in the markets while continuously realigning the portfolio to meet my personal goals and needs each year.  Unfortunately, this particular money is outside of a tax shelter, so I would create a taxable event every time I reallocated.  The second option (and even the third) would minimize that tax impact (or avoid it altogether).

In conclusion, if I had specified an exit strategy before investing as I was supposed to do, then this quandary would have its answer before there was ever a question.  Live & learn.