Climate Change and Your Portfolio

Climate change.

Touchy subject. Not sure why. It’s rather plain that the climate is changing. It’s also plain that the change is accelerating. While some might object to those two sentences, I find that the real controversy isn’t the change, it’s what is causing the change. Is it nature doing its thing, or is it humanity destroying their planet?

I’m not tackling that question today. If you want to know my belief on the matter, take me out to lunch. But for today, free from the cost of a meal, I will tell you what you need to do about it—at least when it comes to personal finance.

Step one: Do what you can for you. If you are in an area that tends to flood already figure out how to move someplace higher. If you like a view of the ocean, get some of that beautiful ocean scene wallpaper and put it on your wall. Unlike earlier times you don’t need to be right next to water for your livelihood. Well, unless you fish for a living, but your boat will float, so there’s that.

Step two: Get others to do what you can’t do for yourself. Convince other folks to gather with you to do things like clear out old forest growth, build dams (enjoy convincing the green party about that one), putting up and improving levees, upgrading storm drain systems, and putting in redundant water systems. Sorry, but this will likely involve taxes—maybe you can get the rich to pay for it.

Step three: Assume that other folks will do stupid stuff. Of course, you and the other folks will not agree on what is stupid. Let’s use energy as an example. If you believe that fossil fuels are not a big problem, you still must remember that more and more people think that using fossil fuels is unsustainable and are acting as if that is the case. If most of your investments are in non-renewable energy, or your job is, make plans for it being harder to make money there. It doesn’t matter if they are wrong…it matters what they do about it. Right or wrong doesn’t matter. Fight the idea if you want but be ready in case the other side wins.

Step four: Realize that everything overshoots. Going back to the energy debate; if you believe that fossil fuels are bad, and renewable energy is good, you might be tempted to invest in anything that has green in its name. You might make some good money. But if enough people think the way you do, then the price will climb to the point of being excessive. Prices can fall. Even if you want to go heavy on green investments to support your beliefs, maintain diversity so that excesses don’t reverse and take down your portfolio. Being all-in is fun in poker…but not if you bust out.

Step five: Don’t ignore this. You might not think climate change is a big deal. But others do, and their actions will affect you. After all, I’m writing this from a drought-prone, non-flood prone neighborhood. That doesn’t mean I can ignore the floods elsewhere.

Gary Silverman, CFP® is the founder of Personal Money Planning, LLC, a Wichita Falls retirement planning and investment management firm and author of Real World Investing.