Before we continue let’s remind ourselves what political tribalism means and how it can influence political investing. People with strong political beliefs may self-segregate into tribes of like-minded individuals. Often, they develop a close identification and loyalty to the tribe. This can occur whether the preferred political party of the tribe is in or out of power.
Within tribes, trust is often given to information sources that reinforce existing political beliefs. Views from outside the tribes are usually rejected or ignored. Even established or well-regarded facts are judged for inherent biases.
This contributes to confirmation bias among individuals that can affect decisions they make, including those related to money and investing.
Recent surveys by the Pew Research Center show that political tribalism is stronger now than it was 25 years ago. Around 45% of politically inclined people – both Democrats and Republicans hold very unfavorable opinions of the other party.
There are many reasons why the gap between the two political parties has widened during this time, but several trends have occurred along with the rise in partisanship. These “other” trends are what a financial advisor should be tracking for you.
For one, the media landscape has grown more competitive in recent decades, with the evolution of cable television, the Internet, and social media. In particular, news coverage on television networks and online platforms has focused more on politics as media companies pursue higher ratings and engagement in search of ad revenue and profits.
Two, trust in a wide range of traditional institutions has declined over this time, from the government and religious organizations to the media, business, and higher education. In the past, the American public viewed these institutions as sources of expertise and authority. The erosion of trust has downgraded the value of expertise and increased awareness of institutional bias.
During election years, especially those when control of the White House is at stake, political tribalism tends to blossom. The shifting dynamics of tribal sentiment before and after Election Day can be astounding to watch. The most recent presidential election offers a prime example.
Throughout 2016, Democrats were broadly optimistic about the state of the economy and the future of the country. That is until Donald Trump won the White House. Then these sentiments shifted nearly overnight to a more pessimistic outlook.
The opposite trend could be seen among Republicans. Sentiments about the state of the country and the economy among the GOP faithful were largely negative before Election Day. After president Trump’s election, Republicans were as jubilant as Democrats were despondent. Nothing else had essentially changes except control of the Executive Branch. At Patriot Advisory Group, our 30+ years of experience has navigated our clients’ portfolios through very diverse political climates.