MW This hidden investing flaw is costing you money. Talking to political opponents fixes it.

By Mark Hulbert

The stock market doesn't care about your politics. Insisting on a portfolio that's red or blue can forfeit a lot of green.

Politics and investment portfolios don't mix.

Republican investors who want to improve their performance should discuss their trades in advance with friends and colleagues who are Democrats. And the same goes for Democrats.

These are big asks, given the gaping political divide in the U.S. right now. Even with investment strategies, a bipartisan discussion group that sets politics aside seems like a far reach. Many investors tell me they'd sooner give up some performance than sit down with investors who don't share their political beliefs.

That's their right, of course. But they should be fully aware that their political polarization could be costing them.

To appreciate how polarization can bias our thinking, contrast the readings on University of Michigan's index of consumer sentiment among Republicans and Democrats. As you can see from the chart above, the two indexes swing widely depending on the party occupying the White House.

Democrats had a rosy view of the economy while Joe Biden was president, but their sentiment plunged after Donald Trump won the November 2024 election. Just the opposite pattern was evident before and after the November 2020 election.

From the archives (January 2026): Many investors let politics influence their portfolio decisions. That's a big mistake.

What's particularly telling is how quickly the sentiment changed in the wake of those two elections. The economy's prospects rarely change in an instant - yet following the last two presidential elections, consumer sentiment literally changed overnight.

Though it seems trite to say it, the truth about politics and investing is somewhere in the middle. Consider the performance of three ETFs that are focused on one side of the political divide or the other:

-- The Point Bridge GOP Stock Tracker ETF MAGA, which invests in a universe of 150 companies from the S&P 500 SPX "whose employees and political action committees (PACs) are highly supportive of Republican candidates."

-- The Democratic Large-Cap Core Fund DEMZ, which "only includes companies that have made over 75% of their political contributions to Democratic causes and candidates."

-- The American Conservative Values Fund ACVF is "designed for investors seeking to align their portfolios with conservative values. ... ACVF excludes companies based on a conservative, values-based screening process."

Yet as the chart below shows, these three ETFs' returns since the November 2024 election through the end of May 2026 are closely related.

Learning from opposing views

One of the most revealing studies finding that bipartisanship pays off is entitled "Costs of Political Polarization: Evidence from Mutual Fund Managers during COVID-19." The research examined the performance of three groups of actively managed stock funds. The first group contained funds whose management teams only included Republicans. The second group of fund managers were exclusively Democrats. On average, both of these two groups underperformed the third group - mutual funds whose teams included both Democrats and Republicans.

Why would politics matter? The study concluded that politically diverse management teams were ideologically and cognitively more flexible, which contributed to better investment-decision making. In contrast, the rigid ideologies of homogenous teams "constrain portfolio choice" and make it less likely that the funds will "adapt to novel or changing environments."

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com.

Read on: The stock index you invest in isn't always the most important decision. Here's what matters even more.

-Mark Hulbert

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June 13, 2026 14:52 ET (18:52 GMT)

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