After scary Christmas Eve market plunge, what should you do?

Two relatively meaningless lines on a chart showing the S&P 500 during Trump's presidency. One shows a floor...where stocks would be if they retraced all "Trump Rally" gains. One sort of shows a kind of normal trajectory (moving average), suggesting stocks moved higher very fast, and the recent correction is still relatively normal. You could draw other lines showing other things however.

Worst Christmas Eve EVER. Worst December since the Depression. Worst year since the Great Recession. Bear market. Do I have your attention now?

The stock market is angry, and you are a victim now. If you've been brave enough to look at your portfolio in the past few days, you know you've lost a lot of money. The S&P 500 index is down 20 percent from its highs earlier this year, which triggers the moniker "bear market" on Wall Street. If you had $100,000 in a typical basket of market stocks then, you only have $80,000 now.

The Christmas Eve selloff, on a day when trading is usually very light, is particularly worrisome. On a half-day, when many traders would rather be drinking eggnog, they rushed in for this market rout. That's pretty telling.

Why is this happening? How long will it last? And what should you do?

I can offer some general speculation about the first two questions -- anyone who asserts more than that is lying to you -- but I can give some pretty good advice on question three there. So let me start there.

WHAT SHOULD YOU DO?

Do what you've always done. Buy into the market in small pieces, all year, a technique called dollar-cost averaging -- that's the way your 401(k) account works automatically. It's a way of hedging your bets - you'll take advantage of buying when prices are low. It smooths out gyrations like this.

Most critically, make sure you have a long time horizon for the money you invest in stocks (and by extension, most mutual funds). Investing is not for the short-term. It's for the future, and by future, I mean a long time from now. I argue with friends all the time about what "long-term" investing means. Where you put that marker is a matter of opinion. To me, if you think you'll need the cash in the next 7 years, you shouldn't be putting it in stocks. (I have a long explanation of this time horizon here). Five years should be a maximum time horizon, I'd say.

You just can't time the market. Recall 2008: anyone who retired in 2009, 2010, or 2011 and pulled their money out of the market got really screwed. Don't let that be you. If you needed your money in 2009, you should have been (gradually) moving it into some kind of cash or cash-like instrument starting way back in 2004.

If you plan to retire soon, and you need the money, this crash is a big kick in the teeth, and I'm really sorry. But if this crash simply makes you think, then good. Do you need your money between now and 2023? Then start making other plans for it right now. This is a wake-up call.

If you don't need your investment money between now and 2025, then you are in luck! Because one day 10 or 20 years from now, we'll all say, "Wow, I wish I bought stocks during that 2018 market crash." Which is exactly what has happened in every other crash. But you'll have to be patient. How patient? I'm not sure.

HOW LONG WILL THIS CRASH LAST?

Onto your other burning questions. The stock market is behaving badly now. When will it end? No one knows. There are so many uncertainties right now, and investors hate uncertainties. Will interest rates continue to rise? Will the trade war with China escalate? What other surprises will Donald Trump bring? Are stocks just .... too expensive after a record nine straight years of gains?

There are some guidelines work noting. A Goldman / CNBC analysis shows that bear markets see an average drop of 30% -- suggesting there is still plenty of pain to come -- can last 12 months, and recovery can take nearly two years. During the Great Recession, the major indexes collapsed in 2008 and didn't recover until 2012. They did recover, however. Money invested in the S&P 500 during January 2008 is up nearly 150% since then.

In other words, if you are in this for the long haul, stay the course.

HOW DID WE GET HERE?

You already know the various theories. China, interest rates, overheating, corporate debt. (Wait, what? Keep your eye on that one.) Keeping things simple, stocks are still up about 30% since Donald Trump took office, even after this month's collapse. That's too much. Nothing fundamental changed about the economy in the past two years. If you believe the sugar high of the tax cut and the press releases about regulations did really impact the economy, I can't really help you -- other than to suggest you not believe things simply because someone you like says them. The tax cut didn't generate raises or increased consumer spending or corporate investment. It primarily helped companies buy their own stock, which did goose prices temporarily. But it didn't help create a new fuel source or a breakthrough technology or improve transportation in a way that fundamentally helped America's economic output. Investments, over the long term, reflect reality. That is what is lovely and brutal about them.

Donald Trump is now learning what all presidents, and NFL quarterbacks, learn the hard way: when things are going well, the person on top gets too much credit; when they are going poorly, s/he gets too much blame. The presidency has a limited impact on the economy. Generally, Wall Street just wants to be left alone; investors like boring predictability. That's unlikely now, so I suspect we are in for a very rough ride. There's no reason to disqualify the possibility that investors might give back all the "Trump rally" gains. Short term. On the other hand, it's about equally possible that January earnings reports will show that nothing fundamental has changed, consumers spent a lot during the holiday season, and firms are still enjoying solid profits ... so stocks might rebound. I don't know, and neither do you.

But remember, Long term, you'll very likely be ok. And if you aren't, then the U.S. has much bigger problems than your retirement account.

So take this scare as inspiration to make sure you believe in your investment plan. Re-balance your portfolio if necessary -- maybe this bear market means you are now over-invested in a sector. Fix that. If you need money for a house or a car or retirement in the next five years, slowly start selling out of stocks. But otherwise, hold on tight.

PS - What did I say in February the last time something like this happened? How did I do?