Nvidia’s surging stock performance has left investors questioning whether it’s time to take profits and how to manage potential capital gains taxes. The stock has seen a 198% increase over the past year, making it a significant portion of many portfolios. While Nvidia’s success is a reflection of the AI trend sweeping the market, it also poses risks if enthusiasm wanes.
Financial advisors suggest reevaluating Nvidia’s impact on portfolios, especially if it represents a disproportionate share. There is no set rule for when a stock becomes excessive, but owning more than 10% of your portfolio in a single stock is typically considered high. Selling off some Nvidia shares could help reduce exposure to potential losses.
In tax-deferred retirement accounts like IRAs, capital gains taxes are not a concern as withdrawals are taxed as ordinary income in retirement. In taxable accounts, capital gains taxes must be paid on any profits earned. Offsetting gains with losses can help reduce tax liabilities, with short-term gains taxed as ordinary income and long-term gains subject to lower rates. Strategies like tax-loss harvesting and diversifying holdings can help manage tax implications.
For investors seeking exposure to the AI theme without over-relying on Nvidia, alternative investments like Micron Technology or Corning may be considered. Diversifying among growth stocks or equal-weight index funds can also help mitigate risk. Selling Nvidia shares could provide liquidity for personal goals like home renovations, offering a way to finance expenses. While Nvidia’s stock may continue to rise, taking profits is a prudent financial move that investors are unlikely to regret.
Consider consulting with a financial advisor to assess your portfolio and tax implications before making any decisions. Elizabeth O’Brien’s insights from Barron’s offer valuable advice for navigating Nvidia’s market impact.
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https://www.barrons.com/amp/articles/nvidia-stock-capital-gains-taxes-b1a94883