What to Do When You Hit a Homerun

So, you picked a winner. Maybe it was a stock you believed in early, maybe it was part of your company’s compensation, or maybe you just got lucky. Either way, you’re sitting on a big gain—but now what?

The problem with hitting a homerun in investing is that it can leave you overly concentrated in a single stock, with a massive unrealized gain and a hefty tax bill waiting if you sell. It’s a good problem to have, but it’s still a problem. Here’s how to think through your next move.

Assess Your Risk

Just because the stock has been a rocket ship doesn’t mean it always will be. Companies change, industries shift, and if too much of your net worth is tied up in one stock, you’re taking on a level of risk that can be avoided. Ask yourself: If this stock dropped 50% tomorrow, how would you feel? If the answer is “sick to my stomach,” you need a plan.

Consider Gradual Diversification

Selling everything at once might not make sense—both from an investment and a tax standpoint. A more strategic approach could be:

• Selling in stages to spread out tax impact
• Using charitable giving strategies (like donating shares to a donor-advised fund for a deduction)
• Looking into opportunity zones or other tax-efficient reinvestments

Use Hedging Strategies

If you’re not ready to sell, but want to protect against downside risk, tools like options or structured products can help reduce your exposure without triggering a tax event. Just make sure you fully understand the strategy before jumping in.

Exchange Funds – A Tax-Efficient Way to Diversify

If you want to reduce concentration without selling and triggering a big tax bill, exchange funds can be a great option. These allow you to contribute your highly appreciated stock into a fund with other investors doing the same thing. In return, you get a diversified portfolio while deferring taxes on your gains. You need to hold for at least seven years, but it can be a powerful tool to manage risk without an immediate tax hit.

Don’t Let Taxes Dictate Your Entire Strategy

Yes, capital gains tax hurts. But holding onto a risky, concentrated position just to avoid a tax bill can be an even bigger mistake. Taxes should be part of the decision—not the entire decision.

Gifting to Your Kids – The Step-Up in Basis Advantage

If leaving wealth to your family is part of your plan, holding onto highly appreciated stock until you pass can be a smart move. When your heirs inherit the stock, they receive it at a stepped-up cost basis, meaning capital gains taxes are wiped out on all past growth. This allows them to sell the stock tax-free (based on the value at your date of death) instead of paying taxes on the original purchase price. If legacy planning is a priority, this is one of the most tax-efficient ways to pass down wealth.

Reframe Your Mindset

It’s easy to fall in love with a stock that’s made you money, but at some point, risk management has to take priority. Winning in investing isn’t about holding forever—it’s about making smart decisions along the way.

Hitting a homerun is great, but knowing how to round the bases properly is what separates the pros from the amateurs. Don’t let one stock control your financial future. Plan your exit, manage your risk, and make sure that win actually counts.