Is your investment portfolio a Democrat or a Republican?
Depending on your political stripe, you’ve likely heard or even uttered one of these battle cries: “Biden is going to destroy the economy by leaving the border open!” or “Trump is going to destroy the economy with his tariffs!”
That’s fine for the dinner table, but it’s a financial catastrophe waiting to happen if it’s the guiding light for your investments.
The Cost of Political Bias
What does that look like in reality? Let’s say you were so confident that Biden would drive the economy over a cliff that you went to cash and stayed there. To protect yourself, you would have missed out on a staggering 62.7% surge in the between January 2021 and January 2025.
If you had a $200,000 portfolio, that’s enough to fund an entire college education for your three-year-old, 15 years before she’s even ready to go. If you had a $500,000 portfolio, that gain could have easily funded a second home. All of this would have, should have, could have been realized—unless you were a Republican who invested along party lines.
Likewise, as a Democrat, if you went to cash at the beginning of 2025 because you were certain that Trump and his tariffs would sink the economy, you would have missed out on 10.2% growth in the markets for just eight months
History is full of these contradictions. If you are conservative, you would never believe the Great Recession could happen on George Bush’s watch, and you would have been equally shocked that a card-carrying liberal like Barack Obama would lead the country out of it.
The Economy is Bigger Than the President
These examples surface one of the primary reasons why investing along party lines is a stupid investment trick: the economy is bigger than any one leader. George Bush didn’t cause the Great Recession any more than Barack Obama fixed it.
The performance of the market under various constellations of Democrats and Republicans is instructive:
- Democratic president with split Congress: 13.6%
- Democratic president with Republican Congress: 13.0%
- Republican president with Republican Congress: 12.9%
- Democratic president with Democratic Congress: 9.8%
- Republican president with split Congress: 5.8%
- Republican president with Democratic Congress: 4.9%
There’s very little correlation here, except to say the highest returns have occurred in periods where there is not a plurality in the three branches of government.
The Only Truth That Matters
There are certain central truths in politics. But there are also certain central truths about investing. One of these is that a diversified, appropriately allocated portfolio is your most reliable path to financial independence. Never should these two truths exert influence on one another.
In the end, the market doesn’t care about your political party. Don’t let yourself be blinded by the light of partisan politics. The only truth that matters is a diversified, long-term plan.