There are signs that a market collapse is coming. Knowing what to buy, hold or sell now is crucial.

We've seen a four-day swoon in U.S. stocks on top of more indications the Federal Reserve will lift short-term interest rates. Friday's blockbuster jobs report boosted the odds that the Fed would hike rates, which have been near zero for seven years. The S&P 500 has consolidated under 2,100 for three straight sessions, with sharp drops this week in a slew of familiar stocks.

Priceline, (PCLN) , Dr. Reddy's Laboratories (RDY) - Get Report , Zoe's Kitchen (ZOES) , Kronos Worldwide (KRO) - Get Report , Macy's (M) - Get Report , Alcoa (AA) - Get Report   and Juniper Networks (JNPR) - Get Report  are just a few of the biggest decliners. Several other widely held but dangerous stocks appear poised for steep drops as well.

China's economy is also losing steam. The world's growth engine reported this week that imports in October plummeted nearly 19% compared to a year ago.

By no means is it time to panic.  We could be witnessing a healthy breather -- a round of profit-taking before the markets resume their upward path. However, it pays to be prepared. Below is a primer on how to tell when the time is right to sell an investment.

As an investor, you need to remain coldly rational about your holdings. When a stock, bond, or mutual fund has soured and it's time to sell, don't agonize over it. Dump it! In fact, here's a list of terrible stocks that are about to plummet. If you own any of them, don't hesitate. Sell them now.

When to sell a stock. Any equity you now hold that you don't consider to be a buy is a strong candidate for a sale.

If the stock has loyally served you well in the past, you may be reluctant to sell it. But put on your analyst's cap and ask yourself: If I had to rate this stock, would I give it a buy, sell or hold? If the answer is sell, then follow your own advice, and do so.

To make the decision easier, remember that you don't have to dump the entire stock holding. If you still think the stock might hit the floor but it still has potential, at the very least, pull back your position.

You could sell half and then put off making a decision about the other half. Nonetheless, don't just hang onto a stock that you've soured on, simply out of inertia or sentimentality.

When first buying a stock, smart investors establish a specific "buy up to" price target or a range within which they would consider selling the stock. As part of every stock purchase, include your own analysis of the stock's actually worth.

We tend to look for stocks with a current price that's at a discount to our estimated value. For example, say you've set a goal of selling the stock as soon as it has doubled in price, a worthwhile goal that implies you think the stock is undervalued by 50%.

In addition to monitoring the stock's price, you also should keep an eye on the health of the underlying business. If certain key fundamentals such as revenue, earnings and cash flow markedly decline, you should be proactive and perhaps sell before the stock price takes a dive.

Then there's the so-called "25% rule." Historically, the stock prices of strong companies have started to pull back after a rise of about 25%. When a stock has reached this threshold, consider locking in at least a partial profit. This past week, certain weak stocks were seeing big red arrows. If you own them, consider dumping them.

Here's a stock to consider selling: Sears Holdings (SHLD)

When to sell a mutual fund. For starters, don't be impulsive. What happens all-too-often is that an investor picks a mutual fund because of its stellar past performance, but quickly becomes disillusioned when the first couple of quarters are disappointing.

He or she dumps the fund out of frustration, only to see the fund eventually live up to its potential.

That's why, when a fund that seemed good on paper starts to go south, the first thing you need to figure out is why. Compare the fund's average performance to similar funds and examine the overall context. Maybe the problem isn't with the fund managers but with that particular sector.

Always keep in mind that mutual funds are not synonymous with stocks. A stock market drop doesn't automatically translate into a "sell signal" for the fund. Stocks are individual investments with rates of return linked to what investors will bear. Equities are governed by a "buy low, sell high" dynamic.

Mutual funds are not singular entities; they are a basket of financial instruments chosen by managers according to a pre-established investment strategy.

The clear advantage here is diversification. A decline in one or more of the fund's holdings is typically offset by other assets in the portfolio that are either holding firm or rising.

Because a mutual fund can represent diverse markets, relying on market timing to sell your fund is misguided. Moreover, because mutual funds are designed for long-term gains, a rate of return during the first year or so that's disappointing is not a sufficient reason to dump the fund.

One potential sell signal is a major outflow of fund dollars. Mutual fund managers prefer to stay fully invested within their investment mission. When a fund undergoes a high level of redemptions, the managers might be compelled to keep more cash on hand to meet these redemptions. In turn, this cash is not available for investment in the stocks, bonds or other assets that the fund is supposed to emphasize.

Sometimes, patience is the best counsel and all you really need to do is ride out the turbulence. The time to sell is when your fund is doing poorly, compared to its peers.

Here's a mutual fund to consider selling: California Water Service Group (CWT) - Get Report


When to sell a bond. Unless you plan to hang onto a bond until it matures, don't buy it. That said, situations may arise in which you need to sell bonds to recalibrate the asset allocations within your portfolio (or to quickly raise cash). The most persuasive reason to dump a bond is that the issuer, whether a corporation or a municipality, is unraveling at an accelerating pace.

Many investors make the mistake of thinking bonds are inherently safer than stocks. But the fact is, low-rated bonds can be just as risky, if not riskier, than stocks.

When investing in bonds, your return is linked to its credit rating as well as market fluctuations. Bond choices range from the highest credit quality U.S. Treasuries to speculative bonds that are below investment grade. For most investors, it's preferable to put money in bonds that are highly rated, or U.S. Treasuries.

However, if your bond has a lower rating and you find yourself in that unenviable position of watching its issuer deteriorate, secure the services of a savvy broker, to make sure that you get the best possible price.

Regardless, remain informed at all times about the credit status of your bonds. A common mistake is to put bonds on autopilot, but that's a bad move because circumstances surrounding the bond can change.

The higher the bond's return, the higher its risk. Conversely, safer bonds confer lower returns.

If you decide to sell a bond before it matures, you'll receive the prevailing market price, which may be lower or higher than the original price. The value of bonds fluctuates with the market, in the opposite direction of the movement in interest rates. Bond funds' values fluctuate in the same manner.

Through it all, always remember that diversification is your best defense against the vicissitudes of the economy and the markets. Ensuring a well-balanced portfolio will compel you from time to time to sell certain investments, in favor of buying others.

Here's a bond fund to consider selling:

iShares 20+ Year Treasury Bond

(TLT) - Get Report

In today's choppy market, we've found a group of particularly vulnerable stocks that are on the verge of collapsing. What's worse, these stocks are commonly found in retirement accounts. To find out if any of these investment landmines are in your portfolio, click here for a free report.

John Persinos is editorial manager and investment analyst at Investing Daily. At the time of publication, the author held no positions in the stocks mentioned.