How to Invest in Stocks Like Tesla Before Retirement
Tesla stock has soared since 2020, leading to FOMO for those who didn’t invest when the shares were so cheap.
But aggressively buying Tesla and other stocks backed by entrepreneurs like Elon Musk isn’t a solid strategy for investors saving for long-term goals like retirement. What is something A smart strategy is to invest using a well-diversified portfolio with a long-term mindset — and possibly still exposure to popular growth stocks. For example, you may not own Tesla stock directly, but if you own the S&P 500 index fund, Musk’s company is a bigger part of your portfolio than you might expect. Here’s how you can determine your exposure to Musk’s companies and any other high-flying stocks.
1. Determine your current stock allocation
The first step is to review all the stocks, exchange-traded funds (ETFs) and mutual funds in your account and decide how much of your portfolio is invested in these stocks. You can look at their top holdings and see if Tesla and other major tech stocks are listed. If you own a fund that tracks a benchmark like the S&P 500 or the Nasdaq Composite, companies with larger market capitalizations take up more real estate. That means you’ll have more exposure to Tesla than smaller companies.
You don’t want to spend hours looking at hundreds of positions in your index fund. But you should pay attention to which stocks make up at least 1% of your total assets, remembering that many experts say that if a stock makes up more than 5% of your portfolio, it is considered concentrated.
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2. Limit yourself
Young investors with horizons that span years or even decades have more time to tolerate market corrections and sharp fluctuations. But if you’re nearing retirement, you may want to reduce your exposure to growth stocks.
Compounding your exposure to a single stock by a small single-digit percentage — like the aforementioned 5% — provides balance. You get exposure to stocks that can generate significant returns, but if the price goes down, it won’t be a disaster for your retirement plan.
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3. Balance without emotion
The best investors use logic, rules and criteria to guide their investments. They don’t rely on emotions, and they develop the necessary precautions to ensure they stay on target for retirement. You can review your 401(k) plan periodically and rebalance some of your holdings to reduce exposure to growth stocks like Tesla as your risk tolerance decreases.
Strategies that work for investors in their 20s and 30s don’t work when you’re in your 50s and 60s. Limiting positions when they reach more than a certain percentage can ensure that you are not overly focused on one stock.
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4. Align with your retirement age
While many people like the idea of buying a single stock from scratch, most people can retire just fine using a simple investment strategy that fits their goals and time horizon.
Financial advisors often recommend that retirees save enough money in a liquid account like a savings account to cover one to two years of expenses. Then you can allocate your assets to bonds and stocks — including long-dated equities but also high-growth stocks — based on factors like your other sources of income, expenses and goals.
