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Why is Mr. Market Being a Scrooge?

Is Mr. Market being a Scrooge or is he offering an enticing Christmas discount? It's all in how you frame it.

The global markets have been in a steady decline for the past month or so. Leading up to December, we saw a spike in volatility, and now we are nearing Bear Market territory.

What gives? Well, for one thing, there is no shortage of scary headlines -- tariffs and trade war worries, Fed rate hikes, a government shutdown, and a foreign policy clash in the White House.

Mr. Market is made up of billions of participants. Those participants are people. And those people are worried. Mr. Market is emotional, and he doesn't respond well to short-term uncertainty.

However, in the midst of all the emotion, here are a few facts that should help keep things in perspective: 
  • Market declines greater than 10% happen on average once every year
  • Daily declines of 2% happen on average 5x per year
  • Markets are positive nearly 3/4 years
We know that these market declines are a part of investing. We can't share in the upside unless we endure the downside. Markets don't provide positive returns for free. Market volatility and temporary declines are the prices you pay.

But what does this mean for you? Below are answers to some FAQ's:

I'm retired, do we have to sell stocks at low prices to fund our withdrawals? No. We hold short-term high-quality bonds for a reason. They usually don't decline when stocks decline. Each retiree has roughly 8-10 years worth of withdrawals in bonds before we'd need to sell stocks at depressed prices. This provides a long runway to endure a bear market. We can't predict them, so that's why we prepare for them ahead of time.

Should we make changes to the portfolio? Has your financial plan changed? If not, then we shouldn't change the portfolio. We only change portfolios when life changes, not when markets move. We will continue to follow the disciplined rebalancing strategy set into place -- always buying at relative low prices and selling at relative high prices.

I'm still working and saving, how should I respond?You should respond with glee and Christmas cheer! This decline is the best Christmas sale around -- in fact, it's the only sale that will make you money. You have the opportunity to buy stocks at cheaper prices, and those stocks will grow for the rest of your life. Stock market declines are the only sales that people run away from. When you are a long-term investor, you should welcome these declines with more glee than a sale at your favorite retail store!

Mr. Market can be emotional and unpredictable. We can't control him, but there are many things within our control:  
how much we save, diversification, tax efficiency, asset allocation, and disciplined rebalancing.

If you are a QHA client, you have done all you can do to prepare. Now it's time to turn off the TV, put down the newspaper, and enjoy the holidays with your family and friends. If you help to talk through it further, I'm here for you.

Merry Christmas and Happy New Year!