Losing money is never easy – it’s even harder when you must consciously decide whether to lose money because your investment hasn’t performed as you’d hoped or planned. This is why it’s critical to have an exit strategy planned BEFORE entering into any sort of investment or financial transaction. However, if you haven’t, you’ll likely need to make some choices at a time when you might be facing a loss or hefty fee as in the case of dropped values of investments in volatile markets, or locked-in loans when your situation has changed. To alleviate some of the emotion to make a business decision about the best action to take, it’s important to step back and look at your original intentions and apply a systematic, calculated analysis on the money in question.

How? First, remember that your goal with any investing is to eventually convert savings to income so that when this happens, it’s a smaller number (i.e. $100k might be down $10k; the income on the $90k is still likely in line with your expectations). Likewise, if a fee to refinance or pay down a locked-in loan is $10k, you will have to calculate the long-term costs of doing, versus not doing, the refinance. A financial calculator is an invaluable tool for this purpose. Second, review your original risk tolerance on your investment that’s dropped in value. If the percentage of loss stated was a worst case comfort level (and has been met), then a sell decision was already made – you just may not have considered that given the current market value of your investment. And, if your original loss comfort level has not yet been reached, then you can relax and watch knowing that if the situation worsens, you might need to realize a real loss. And third, when planning your exit strategy in a volatile market, it’s best done while considering your entire portfolio and individual investments. For example, if an investment has dropped in value by 20%, but your entire portfolio is only down by 3%, then you’re in a better position to hold on to the investment that has the large loss because it’s not creating a significant impact overall.