Personal Finance

Should I sell my TSLA stock to move to a more stable stock, or just keep it as is for long term investments?

Joey Frenette

Published: November 30, 2024 9:15 am

Selling some of your biggest winners can be incredibly difficult to do. And while there’s a good chance that such a winner can continue winning, potentially for many years down the road, it’s vital that investors maintain discipline and not get too attached to some of the holdings that have helped put them on the fast track to a more prosperous retirement. Indeed, I do not advocate punishing your winning stocks so that you can put more on your losers.

That said, if the winning stock in question has soared to a valuation that’s too lofty for your own liking and you have concerns about your overall portfolio’s risk profile, trimming some of your winnings off the top can be a wise move.

For those still bullish on the longer-term prospects, there’s no shame in taking partial profits and letting the rest of your position run. Indeed, valuations can be tough to pin down in the face of technological innovations that could rejuvenate growth rates.

In light of such profound uncertainties, I’d argue that taking some percentage of your shares off the table (many people choose to sell half of a position after a hot run), just in case you’re proven wrong to tell and a stock continues to rocket higher after you’ve sold out.

By selling just part of a position, I believe you’ll position yourself to have no regrets, regardless of where a stock heads next. Additionally, you may be less tempted to buy back into a full position at higher prices at some point since you already have skin in the game.

Key Points About This Article

• Letting your winning stocks win can be a great move, provided your portfolio remains diversified.
• If you’re not properly diversified, selling some shares could be a wise move.
• Also: Take this quiz to see if you’re on track to retire (Sponsored)

Excessive single-stock risks can derail a portfolio

Consider the curious case of a Redditor sitting on a pretty fat gain from their Tesla (NASDAQ:TSLA) investment. The poster, who took to the r/investing subreddit, wonders if he should keep riding the winning EV firm higher or if it’s a better idea to rotate the funds into what he refers to as a “more stable stock.”

Indeed, rotating from growth to value seems intelligent if one’s portfolio isn’t well-positioned to ride out a correction, bear market, or lengthy recession. When it comes to a stock that’s served up multi-bagger gains over the years, your portfolio’s weightings may be thrown off, bringing forth the need to rebalance to ensure you’re sufficiently diversified.

In the case of TSLA stock, it’s rocketed more than 1,400% in the last five years alone!

Given such a phenomenal rally, it’s hard not to have such a position grow to comprise a large double-digit percentage of your portfolio if you haven’t done any selling over the years. Undoubtedly, if you’ve got 50% of your net worth in a single stock, it’s only good practice to lighten up and spread your winnings across other names that can bring your portfolio back into balance.

Of course, it will always be challenging to part ways with a name that’s made you big money. And if you’ve truly fallen in love with a single stock, I would suggest considering selling some, most, but perhaps not all of your holdings in one go. Such a move would allow you to be on both sides of the fence and perhaps lead to less regret, regardless of the outcome.

The bottom line

I’d encourage readers in similar situations to sit down and chat with a financial adviser. They’ll tell you just how important diversification is and the magnitude of the risks of ignoring the practice.

Tesla strikes me as one of the magnificent companies that could extend its run — especially if it gets AI and robotaxis right. However, lightening up an overgrown position to stay diversified, at least in my humble opinion. I believe that rotating some of the profits into a high-quality index fund that tracks the S&P 500 or Dow Jones Industrial Average should be sufficient for someone seeking out greater diversification.