Some people have problems and some people have blessings. Sometimes the same set of facts can be viewed in both of those ways.

Dan in San Jose wrote about a problem that many people might wish they had. "I've been a methodical investor for a long time, and I own some mutual funds which have very large gains. These have done well for me. But when I study the outlook for these funds, I don't have any conviction that they will outperform the overall market."

Dan said his funds include Sequoia (SEQUX: news, chart, profile), Mairs & Power Growth (MPGFX: news, chart, profile), Fidelity Contrafund (FCNTX: news, chart, profile), Clipper (CFIMX: news, chart, profile), American Funds New Perspective (ANWPX: news, chart, profile) and Legg Mason Value Trust (LMVTX: news, chart, profile).

"I want to take your advice and diversify more widely, but here's the catch: taxes," Dan continued. "My cost basis of my portfolio is about 20 percent of its current value. To sell them I'd pay 20 percent federal tax plus 9 percent California tax. So how do I design an exit strategy without losing 23 percent of my capital?"

Dan has certainly invested in some very successful funds over the years. On average, the funds he named have appreciated at an annualized rate of 14.2 percent over the past 10 years. That's not bad at all -- until it comes time to pay taxes on all those gains.

This is a real problem, though Dan shouldn't expect a lot of sympathy from investors, many of whom probably would welcome any gains, taxable or not.

We see this problem more often in investors who have most or all of their money tied up in one extremely successful stock such as Cisco (CSCO) or Intel (INTL) or Microsoft (MSFT). These investors are facing two problems: large unrealized capital gains and a lack of diversification. And for them, it's usually worth paying the taxes in order to gain the diversification they need to reduce the very high risk of holding a single stock.

In Dan's case, it's not quite that clear cut. He has a reasonable amount of diversification, including a smattering of international stock exposure through the American Funds New Perspective and a couple of good value funds. But he could benefit from more small-cap and international exposure as well as the low costs of index funds.

Still, it would probably take awhile to recover the combined hit from taxes. There is no perfect solution to this dilemma.

If Dan needed the money, there would be no question what to do. But he doesn't need the money. He just wants to invest it in a better way.

If Dan owned poorly run funds with terrible track records, there would be no question what to do. But by and large, these are well-run funds with no obvious reasons to abandon them.

Dan's best exit strategy should be determined by the rest of his financial situation. It should take into account his other assets and liabilities, the rate of return he will need to reach his financial goals, his overall risk tolerance, his present tax rate and his expected future tax rate.

Dan's message suggests he has been regularly adding to his investments. Chances are good that he has lost money on the investments he made in the past two years or so.

If he can identify those shares from his records, he could sell them at a loss, then also sell some of the shares he bought earlier. With a little careful planning, he could take gains on the old shares that are equal to his losses on the newer shares, letting him take some of his money out without incurring any net tax due.

Actually, Dan's tax liability may not be as great as he thinks, because a lot of his gains may have already been taxed. Each year, funds must distribute their capital gains to shareholders, who pay taxes on them even if they have the money automatically reinvested in more shares.

Dan should check his records for every year he has owned the funds -- or get copies from the fund companies if he doesn't have them -- to make sure he is counting the gains he's already paid taxes on. Too many investors forget this aspect of mutual fund taxation (or never understand it in the first place). They may easily remember the $10,000 they invested initially, yet forget the $5,000 of subsequent gains they have reinvested.

As a result, they often overpay the taxes when they sell fund shares.

Whatever his tax exposure, if Dan is willing to accept the returns of the overall market, this may be an opportunity to reduce the risk of holding these funds and reap the rewards of his successful investments while he takes a more conservative approach, perhaps including some bond funds in the portfolio.

Selling the funds may reduce his portfolio value significantly. But Dan's struggle is an unusual one at this time. While many investors are reluctant to bail out because it would mean "selling low," Dan's reluctant to sell because it would mean nipping his profits. For him, this is still a time to "sell high."

In fact, this is a "luxury problem" for which Dan should be grateful. But it's still a problem.