8. What’s my exit strategy? Ask any experienced investor: the decision to buy an investment is usually a lot easier than the decision to get out. While most “buy” decisions are carefully thought-out, with detailed rationale and analysis behind them, “sell” decisions are often the opposite: taken quickly, intuitively and emotionally. Spending some time defining your exit strategy now can be a good way to make sure that those emotions don’t derail what would otherwise be a successful investment. So ask yourself: what exactly does “success” look like with this opportunity? How much profit are you looking for here? Is this a “buy and hold forever” type of investment? Or a short-term trading opportunity? What signals or criteria will you be looking for which will tell you that it’s time to take profits and move on? When economic or market conditions change for the better? When the price reaches a certain target? When your expected catalyst plays out? Something else? Another question to ask about your exit: will you be able to get out when you want to? With stocks, most bonds, mutual funds, ETFs and other marketable securities, this isn’t typically an issue – all it takes to cash out is few clicks of a mouse or a quick call to your advisor. But with assets such as real estate, a locked-in GIC or an investment in a private business or hedge fund, exits can get complicated. How long would it take you to sell that rental property if you had to? Could you handle any emergencies if you tied up your cash in a three-year, locked-in GIC? Are there strict limits regarding how, when or how much you can sell your position in that hedge fund? If your portfolio is sufficiently large, or if you have other ready sources of cash, maybe these questions don’t matter too much. On the other hand, maybe they matter so much that you need to reconsider the opportunity entirely. Either way, it’s a good idea to think about the question and make sure that you know exactly how your finances and your lifestyle might be impacted if you can’t get to the exit as quickly as you’d like. 9. What are the tax implications? Taxes are usually the last thing we think of when we find an exciting opportunity. But the fact of the matter is, taxes can completely change the profits that we realize on any given investment – which can have a dramatic impact on how we view the opportunity itself. If you’re considering an investment inside a registered account (RRSP, RRIF, TFSA, RESP or similar), then tax issues aren’t usually a big problem. And, if you’re thinking about investing in what we might call “well-known” assets (publicly traded stocks, bank-issued GICs, government bonds and so on), then it’s usually pretty easy to get at least a general sense of what you’d owe under normal circumstances. The further you stray from these areas, however, the more complex the tax picture can become. The classic example for snowbirds is, again, a rental property: the tax rules that make owning your principal residence so attractive are very different with a secondary property. And, of course, if you plan on renting your property out for part of the year, you’ll have to be aware of the tax rules for declaring rental income as well. If the property you’re considering is south of the border (or in another country), things can get really complex, with complicated tax rules skewed in favour of local homeowners at the expense of cross-border investors. Bottom line: before you jump into any opportunity, make sure that you know what to expect when it comes time to pay the taxman. Consult with a qualified professional accountant or tax lawyer and find out what the rules are, and whether those rules change your view regarding how much of an opportunity there actually is. Finance 30 | www.snowbirds.org
RkJQdWJsaXNoZXIy MzMzNzMx