What to Know About Political Cycles and Your Investments

Since the election last November, the media has been buzzing with chatter about the latest political shifts under the new administration and how they will impact the financial markets. With U.S. stocks dropping $4 trillion since February’s peak due to tariff fears and Bitcoin dipping 2.57% to $81,127.81 last week, it’s clear that political cycles and changing administrations can have some short-term impact on the markets. 

As someone who has accumulated substantial wealth, it’s worth asking yourself if you have the interest, inclination, or knowledge needed to oversee your assets, especially as your wealth grows. This is where the services of an experienced financial advisor in Birmingham, AL, can lend insight and guidance into managing your portfolio during periods of uncertainty. 

At BCR Wealth Strategies in Birmingham, AL, we’ve observed how these shifts in government can shape market movements. Understanding their effects can help you approach your financial future with increased clarity. 

In today’s blog, we’ll explore how political changes influence markets and highlight why diversification and a long-term focus should matter for managing wealth.

Read our latest Quick Guide: Birmingham Financial Planning: Balancing Markets & Emotions

How Political Cycles and Policy Changes Shape Markets

Political cycles often bring policy changes that sway investment values and tax policy, sometimes in a very dramatic fashion. Presidential elections in the U.S. often bring dramatic market uncertainty, and historical data shows that subsequent corrections—drops of 10% or more—sometimes follow as these new policies are implemented. 

Here are five major policy shifts to watch, based on historical patterns and the current 2025 context, which might affect your investments: 

1. Changes to tax rates, such as raising capital gains from 20% to 28% or altering corporate taxes (e.g., from 21% to 25%), can impact stock valuations. Higher taxes might reduce after-tax profits for companies, potentially lowering stock valuations. In contrast, tax cuts could boost dividends and share buybacks, lifting markets—think of the 2017 Tax Cuts and Jobs Act’s initial rally.
2. New tariffs, like Trump’s recent strategies in 2025, causing a $5 trillion S&P 500 drop, can also raise costs for importers, hurt manufacturing stocks, and slow economic growth. Conversely, easing trade barriers might favor export-heavy sectors, influencing market sectors differently based on global exposure.
3. A push for infrastructure—roads, bridges, airports—can stimulate construction and materials stocks. This could lift industrials but strain budgets, potentially affecting bond yields and equity valuations in a mixed market response.
4. Shifts in healthcare policy, such as expanding Medicare or altering drug pricing, can impact pharmaceutical and insurance stocks. Stricter regulations might depress these sectors, while deregulation could spark growth, with effects rippling through the S&P 500 over time.
5. An administration’s pressure on the Federal Reserve to adjust rates—lowering them to spur growth or raising them to fight inflation (currently around 3% in 2025)—can sway bond prices and stock earnings. Lower rates might boost equities, while hikes could cool overheated markets, as seen in 1994’s temporary correction.

Smart Investment Strategies for High-Earners in Uncertain Times

As a high-income earner, it’s safe to say that you may be weary of recent market corrections. If so, your best approach is to stay calm and not react. Stick to your financial plan and remember you’re in it for the long haul. Making rash decisions could impact the pursuance of both your short and long-term plans.

Your biggest financial risk is not the volatility of the securities markets. It is failing to pursue your long-term goals, particularly retirement and financial security, late in life.

A market correction—like the S&P 500’s 10% drop in March 2025, shedding $5 trillion due to tariff fears—can be a strategic window for tax-advantaged moves to protect and nurture your portfolio. These moves might help you manage taxes and position your portfolio for improved growth, but they hinge on your financial situation. It’s important to consult with a wealth manager in Birmingham, AL, to see if these options suit your financial future. 

Here are four options to consider:

1. During a stock market correction, your traditional IRA or 401(k) values might be lower—say, a $500,000 IRA dips to $450,000. Converting to a Roth IRA now means paying taxes on the reduced amount, locking in today’s rates (before potential 2026 hikes) for tax-free growth and distributions later in life. This could reduce your tax bill by a substantial amount when you are retired.
2. Sell losing positions—for example, a stock down 15%—to offset a realized gain elsewhere, thereby reducing your tax liabilities. If losses exceed gains, you can deduct up to $3,000 against ordinary income annually, carrying forward the rest. Reinvest in a similar (but not identical) security to stay invested in the market.
3. Roth IRA contributions can serve as a strategic tax move during volatile markets by allowing you to pay taxes now at potentially lower rates, locking in tax-free growth for future gains.
   
4. Contribute to a Health Savings Account—$4,300 (individual) or $8,550 (family) in 2025, plus a $1,000 catch-up if 55+. Contributions are pre-tax, growth is tax-free, and withdrawals for medical expenses are tax-free.

Are you concerned about your tax liabilities? Watch our newest video on tax strategies during your working years.

The Value of Diversification and Long-Term Investment Strategies

Relying on a single investment type during political change can expose you to unnecessary risk. Diversification—spreading assets across stocks, bonds, real estate, and even emerging investments like blockchain—can reduce your risk of large losses during significant market declines.

The better news is that history shows that markets have always rebounded following corrections, so maintaining a long-term outlook is important when weathering economic storms. Try to ignore short-term noise like Bitcoin’s 2% dip for its decade-long 100%+ annualized returns. Your wealth management investment strategy should emphasize this patience, aligning your portfolio with goals like retirement or legacy, not what happens in an election cycle.

If you’re concerned about a new administration’s policies and how they might impact your wealth, schedule a complimentary consultation with us. This could provide a starting point for aligning your investments with your goals, no matter who controls our government.