Schulfer & Associates, LLC

The Most Important Question

When it comes to investing, the most important question is often overlooked.  It’s easy to get money IN to your investments.  You expect that over time, you will earn a rate of return.  But the most important question may be:  What is my exit strategy?

Commonly, investors are introduced to investments that are daily liquid with traded markets such as stocks, bonds and exchange traded funds or the investment sponsor such as mutual fund companies.  These can be found in brokerage or advisory accounts, 401(k)s and used within IRAs.  It’s easy to get your money out of investments that have daily liquidity.  Just put the sell order or redemption request in and your holdings are promptly turned back into cash.  To exit these investments, the considerations become, at what price do you sell, how will you be taxed, and will there be redemption fees such as back end loads or sales commissions that you have to pay.

Other investments such as non-traded securities, real estate, collectables, partnerships or business interests do not have daily liquidity.  Investments that are regulated by an authority such as FINRA or the SEC have investor qualifications such as income and/or net worth in order to participate in the investment.  In addition to selling price, taxation and possible redemption fees, understand when and how you can get your money out.  Illiquid investments are only appropriate for long term time horizons when the qualified investor has plenty of liquidity elsewhere and understands the complexities of the investment.  The same can be said for investing your money outside of regulated investments.  If you are considering a direct purchase of real estate for example, remember to calculate your anticipated exit costs including those that will appear on your closing statement and HUD in addition to taxes.  Speaking from experience, it can take years to sell an investment property.

I have found that use of cash value in a life insurance contract is often misunderstood.  Before committing to a contract between you and a life insurance company, there are several things to be clear on.  Understand the guarantees of the policy.  Be sure you can commit to the premium requirements to sustain the policy.  If cash value is building up in the contract, does it increase the death benefit or decrease the costs?  If cash value is taken out of the contract, does it decrease the death benefit?  If you use the cash value, will it be a loan or a withdrawal?  What will it cost to use the money?  Will taking money out of the contract affect the guarantees?  Besides death, what is the exit strategy for the money in this contract if you wish to have one? 

Annuities are also contracts between you and an insurance company.  Some reasons that people own annuity contracts include tax deferral on non-retirement funds, guarantees of principal, a guaranteed rate of return, or a future guaranteed income stream.  Guarantees are based on the claims paying ability of the issuing company.  Understand your exit.  How long do you plan to keep the contract?  Can the money come out as a lump sum?  What are the surrender penalties and when do they go away?  Is the intention for the money to be used as income?  If so, what are the limitations?  How will taking money out affect contractual guarantees? 

With any investment, understand your exit options before you enter. 

Investing involves risk including loss of principal.  No strategy assures success or protects against loss.  


LouAnn Schulfer is co-owner of Schulfer & Associates, LLC Financial Professionals and can be reached at (715) 343-9600 or

Securities and advisory services offered through LPL Financial, a Registered Investment Advisor.  Member FINRA/SIPC.