Ask an Advisor: Is it Time to Sell My NVIDIA Stock?

I own Nvidia stock in my IRA. Should I retain it or sell most of it? – Cecile

Deciding whether to sell your Nvidia stock isn’t necessarily about predicting where its share price will go next. I’d focus instead on three things: why you own the stock, how much of your portfolio it represents and how a significant decline in its value could affect your broader financial plan.

Depending on your circumstances, holding the stock, selling some of your shares or exiting the position entirely could all be reasonable decisions. Here’s how I’d approach evaluating those options.

Whether you need stock-specific advice or help building a holistic financial plan, consider working with a financial advisor.

Ask Yourself Why You Own the Stock

First, think about why you own Nvidia stock in the first place. Are you speculating on the stock because you think its price will continue to rise, or do you own it as part of a broader investment plan? Those require very different approaches.

There’s nothing inherently wrong with buying an individual stock. However, if you’re buying or holding it primarily because you think you know where its price is headed, understand that you are making a prediction about the market. I wouldn’t encourage you to do that, and can’t personally offer any insight there.

That is especially important when you’re investing for a specific financial goal like retirement. In that case, I think it makes more sense to start with the amount of return you need and the risk you can afford to take to accomplish your goal, and then build your portfolio accordingly.

For example, suppose your purpose for the money is retirement. If you have enough money saved that earning a reasonable long-term return from a diversified portfolio would allow you to comfortably fund your retirement, you can probably better accomplish your objective without relying heavily on any single stock.

(For help evaluating your financial needs and picking investments that align with them, consider working with a financial advisor.)

How Much Nvidia Stock Do You Own?

It’s not so much about the total number of dollars you have invested in Nvidia, but rather how much of your portfolio the stock represents.

For example, $100,000 invested in one stock means something very different to someone with a $500,000 portfolio than it does to someone with $5 million.

Regardless of whether you believe Nvidia will continue rising or start falling, having a large percentage of your portfolio invested in a single company exposes you to significant company-specific risk. Diversification can reduce that risk without requiring you to predict which individual companies will perform best.

On the other hand, a few percentage points invested in a single stock may not materially change the overall risk of an otherwise diversified portfolio. If Nvidia represents 20% of your retirement savings, however, that is a significant concentration.

The point is that the larger the position becomes relative to your total portfolio, the more your financial outcome depends on what happens to that one company. That’s the issue I would focus on rather than trying to determine whether Nvidia itself is currently a good or bad investment.

(A financial advisor can help you assess the risk profile of your portfolio and whether it aligns with your capacity to take on risk. Connect with a financial advisor for free.)

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Consider Your Complete Financial Picture

Beyond the size of your Nvidia investment, it’s also worth considering how that position fits into your broader financial situation.

Suppose Nvidia represents a significant percentage of your portfolio, but you simply have the financial capacity to accept that risk. Maybe you have more money than you reasonably expect to spend during your lifetime, significant guaranteed income or other assets that aren’t exposed to the same risk.

In that situation, a major decline in Nvidia’s stock price might be disappointing without necessarily putting your retirement at risk.

Then again, you may decide that you understand the risks and are comfortable continuing to hold the stock. To be clear, that isn’t necessarily the approach I would take personally, but it can still be a rational decision if you understand the tradeoff and have the capacity to absorb a significant loss.

On the other hand, suppose most of your retirement savings are invested in an IRA and you’ll soon depend on that account for withdrawals. A large position in one stock would concern me much more in that situation. Your age, retirement timeline, other investments, expected withdrawals, Social Security benefits, pensions and other income sources can all affect how much investment risk you can reasonably afford to take.

In other words, don’t evaluate your Nvidia position in isolation. Consider what would happen to your overall financial plan if the stock experienced a significant decline. (If you need help evaluating your broader financial picture, consider matching with a financial advisor.)

Bottom Line

I wouldn’t base your decision primarily on whether you think Nvidia is going to continue rising. You may be right, but you could also be wrong. Instead, consider how much of your total portfolio is invested in Nvidia, why you own it and what would happen to your financial plan if the stock declined significantly.

If Nvidia represents a relatively small portion of a diversified portfolio, keeping the shares may be perfectly reasonable. If it represents a significant portion of the retirement savings you’ll depend on, I’d be much more inclined to reduce the position and diversify.

You also don’t necessarily have to view this as an all-or-nothing decision. If you like Nvidia and want to continue owning it, you could determine an amount you’re comfortable holding and diversify the rest.

The goal isn’t to predict what Nvidia’s stock price will do next. It’s to make sure that whatever it does doesn’t have an outsized effect on your ability to accomplish your financial goals.

Tips for Managing Your Portfolio

A financial advisor can help you evaluate your holdings and determine whether selling certain investments makes sense for your financial situation. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Periodically assess your portfolio to determine whether your investments still align with your financial goals, risk tolerance and investment timeline. Changes in a company’s financial performance or your personal circumstances may signal that it’s time to adjust your holdings.

Brandon Renfro, CFP®, is a SmartAsset financial planning columnist and answers reader questions on personal finance and tax topics. Got a question you’d like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.

Please note that Brandon is not an employee of SmartAsset and is not a participant in SmartAsset AMP. He has been compensated for this article. Some reader-submitted questions are edited for clarity or brevity.