Sell a double?

Q. When one of my stock holdings doubles in value, would it be smart to sell it and buy a different stock? — C.T., Rochester, MinnesotaNot

A.

necessarily. Investors should always be looking forward, not backward. So don’t focus on how well or poorly the stock has done so far. Instead, think about how you expect it to do from this point on. Try to determine how overvalued or undervalued you think the stock is, and what you think of the company’s growth prospects, competitive strength, financial health and so on.

Doubling your money is great, but the best stocks will double in value many, many times, and you might miss out on real gains by selling too soon. If you’re not that confident, though, you might indeed sell — or strike a compromise and sell just some of your shares to lock in some gains.

Here’s a warning, though: If the stock has grown so much that it now makes up a big chunk of your portfolio’s total value, consider selling at least some shares. Even seemingly unstoppable stocks can head south sometimes, and you don’t want to get burned if your largest holding crashes.

Q. What’s “arbitrage”? — S.B., Tulsa, Oklahoma

A.

It’s when investors take advantage of temporary price differences across markets.

For example, Carrier Pigeon Communications (ticker: SQUAWK) might be trading at $75 per share on a United States stock market and at $75.10 per share on a foreign market. If you simultaneously buy some of the lower-priced shares and sell the same number of higher-priced shares, you’ll net 10 cents per share (not counting any commission costs). Arbitrageurs usually invest very large sums to make this worthwhile.

Hoping to retire soon?

If the thought of retirement is no longer a distant pipe dream and you’re hoping to call it quits within five or 10 years, it’s smart to learn more about retirement and about savvy steps you can take now (or soon).

For starters, do you have enough money to retire? Take some time to estimate how much income you’ll need in retirement, then make sure you’ll have sufficient amounts coming in. Social Security is likely to be a critical income stream; set up or visit your “my Social Security” account at SSA.gov to see how much you can expect to receive in benefits. Other income streams can come from pensions, dividends, interest, annuities, rent from tenants and so on.

If it looks like your income will fall short, consider pushing your retirement out by a few more years so you can save and invest more money. Think, too, about how you might be able to bring in extra money on the side — perhaps by tutoring kids or giving music lessons, making and selling crafts or even renting out space in your home.

Remember that you shouldn’t keep money you’ll need within, say, five years (or 10, to play it safer) in stocks — they can be volatile over the short term, and you don’t want to have to sell during a downturn. So as you approach retirement, move part of your portfolio into less volatile investments, such as bonds, certificates of deposit or money market accounts.

Consider consulting a financial professional, too, to make sure all your ducks are in a row. Yes, that will cost money, but it’s likely that a good financial planner or adviser can save you much more than that. We favor fee-only advisers who don’t have the conflicts of interest that other advisers can have. You can seek some near you at NAPFA.org.