Political affiliation can significantly affect a person’s perception of economic conditions, as shown by recent research published by JP Morgan & Pew Research Center. What is interesting about this study, is that the study revolves around current economic conditions, not future expectations. Or more to the point, the study measures how political affiliation influences perception of the same set of economic facts.
The research shows that, generally speaking, the only two areas of overlap between Republicans & Democrats in the past 20 years was during the economic boom during the 2000 “internet goldrush” and the gloom of the 2009 financial market crash. Otherwise, the periods from 2002-2008 and 2012-2019 are marked by widely disparate takes on the same set of economic conditions. Interestingly, periods of time where Republicans were relatively more optimistic coincided with Republican Presidential administrations (G.W. Bush, Trump) and times of relatively positive Democratic sentiment were during the Obama administration years.
From my 30+ years of personal experience of working in the financial services, I strongly believe that a person’s general view on the economy dramatically affects their investment risk profile. That is, the more positive you are feeling, the more likely you are to take investment risk.
If my anecdotal evidence plays out in practice, it stands to reason that “Republican” leaning portfolios were more likely to participate in the market run-ups between 2002-2008 and 2016-2019. “Democrat” portfolios may have been underinvested in stocks during these same periods. Likewise, during the Obama years, “Democratic” investment risk taking may have been more pronounced during the Obama years, a period of huge stock market gains.
What this means for individual investors is that it pays to have a sounding board to consistently bounce your investment thoughts off. I can recount hundreds of examples where personal experience and perceptions colored and influenced investment behaviors. And while politics can be an important component of financial asset valuation, it is often not the most important one.
If you think that your investment strategy may be colored by a world view, it may be worth your time to consider a portfolio review. I find that these reviews are most valuable to individual investors that are looking for a fresh analytical perspective that would serve keep them thoughtfully invested during good times and bad.
Set up a time for your free consultation. I look forward to helping you succeed.