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Financial advisor offers idea on taking charge of your economy

Tim Travis says climbing interest rates will reduce the power of bond portfolios and similar savings vehicles.
Tim Travis says climbing interest rates will reduce the power of bond portfolios and similar savings vehicles.
T&T Capital Management

The Economy

The economic recovery that's supposed to be taking place isn't what it could be, says Tim Travis, an entrepreneur and financial planner with T&T Capital Management. Banks don't know how to lend even several years after the 2008 financial recession is one piece of evidence that economic activity is more sluggish than robust.

"Historically, one of the things that happens after a recession is lending loosens up. We're seven years past the financial crisis and yet [the banks] are still being fined many billions of dollars for loans they wrote eight or nine years ago."

That's one example of how government regulations, he contends, are holding back growth.

Companies, especially small privately held ones, are going to limit hiring due to some key policies. Pushing the minimum wage higher to $10 per hour or more makes labor more expensive and results in fewer jobs, especially among teenagers trying to break into the job market. Legislation like the Affordable Care Act, or Obamacare, adds to the overall cost of having an employee.

"A lot of businesses are scraping to get by and the young adults sector of the job market has been ravaged."

Your Economy

Investors need to treat portfolios like a business, says Tim, and evaluate strategies that protect against interest rate fluctuations.

"A lack of yield from savings accounts, bonds, and similar investment properties has pushed savers into equities.

"We've been in a declining interest rate environment for 30 years. The trend has provided a tail wind for bonds since they go up in value when interest rates go down. In the current levels of interest rates being so low, [rates] don't have anywhere to go but up and people will take substantial losses when rates go higher."

To mitigate the rise in interest rates, he calls for a conservative approach using covered calls and put options. Covered call writing is the selling of a stock at the market price to someone else in exchange for cash paid today. Put options give the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time.

What investors should know is the financial market has numerous opportunities for making gains in all economic climates.

Click here for Tim's views on junk bond yields falling below 5% for the second time ever.