Political polarization is dangerous to your wealth. And overcoming it is a lot more difficult than previously thought, according to a new study.
Assuming you’re like almost all other investors, you become too pessimistic about the economy and the stock market when the presidency is held by someone whose political party is the opposite of yours. As a result, you invest less in stocks than when your political party occupies the White House—with significant consequences to your portfolio.
Consider the huge difference between Democratic and Republican investors’ views of the current economy under President Donald Trump, as measured by the University of Michigan’s Index of Consumer Sentiment. Among Republicans this index stands at 85.0, 49.5 points higher than the 35.5 reading among Democrats. Just the opposite was the case over the four previous years. During Joe Biden’s presidency, the average index of consumer sentiment among Democrats was 31.5 points higher than among Republicans.