I bought Reddit stock and my net worth jumped $3 million in a year – should I double down or scale back?

For many people in the community, Reddit is the gift that keeps on giving. However, one Redditor got a lot more than what he bargained for. 

A 33-year-old male posted in the HENRYfinance subreddit. His net worth surged from a little under $1 million to more than $4 million in 2024, and most of those gains were because of a single stock. You guessed it. Reddit (NYSE:RDDT | RDDT Price Prediction). 

The Redditor believes in picking individual stocks but also understands the value of investing in an index fund to minimize risks. Is now a good opportunity to double down, or should the Redditor get more defensive with their finances now that his net worth is above $4 million? I will share my thoughts, but it is always good to speak with a financial advisor if you can.

Know Your Financial Goals

The first question the Redditor should consider is how much he will spend each month in retirement. If the Redditor follows the 4% withdrawal rule, he can withdraw $160,000 per year from his portfolio. Assuming the market remains strong, the portfolio can replenish the annual withdrawal on its own.

For some people, that’s enough to retire. However, the Redditor still wants to work to a degree. Plus, he’s only 33 years old, so he doesn’t have to rush to retirement. He wants to explore hobbies like learning new languages, reading more often, exploring photography, and mastering video editing. A $4 million portfolio is enough for most people, but if the Redditor wants to operate with a high budget, he may want to hold off on retiring.

Diversify Your Portfolio

Putting all of your eggs in one basket is risky for any investor. Although Reddit stock has outperformed the S&P 500 over the past year, there is no guarantee that this trend will continue. While that’s not enough of a reason to sell Reddit stock, it’s more concerning if shares in the social network make up more than 50% of the Redditor’s portfolio.

Funds that track indices like the S&P 500 and Nasdaq Composite can give the Redditor additional portfolio diversification, thus minimizing risk. He also mentioned that he has a $1 million cash position in his Interactive Brokers account that earns interest. 

It’s good to have plenty of cash sitting around when your net worth suddenly skyrockets. It’s good to assess where you are and avoid making any rash moves. The Redditor has a good mentality. As he gets more comfortable, he may want to allocate some of the cash into an ETF that measures an established benchmark.

Set Some Money Aside for Taxes

There are horror stories about people making substantial capital gains on December trades only to lose all of the money in January. It’s bad to lose all of your money in any circumstance, but it’s even worse in this scenario since you’re still stuck with a tax bill showing substantial capital gains.

The Redditor has $1 million in cash readily available, so this won’t be a problem. However, it’s good for anyone with significant capital gains to keep taxes in mind as they decide what to do with their portfolio next. Calculating your tax bill and putting the funds into a short-term CD can help you earn interest on your money before giving it to the government.