No-one told the polar bears about global warming. Consequently
they continue to swim out to their familiar ice flows to look
for food. But the ice flows are melting and many drown as
a result.
We at least are aware of what is happening and have a chance
to prepare for it, although thousands have already fallen
victim. So far, Bali has not suffered any of the extremes
of drought or flooding that have plagued many parts of the
world. Should things get worse, people in vulnerable places
such as close to the coast or in low lying areas should perhaps
be thinking of contingency plans.
Should we be changing our financial planning strategies?
The basic principles of financial planning still apply, namely
build up cash, ensure protection is in place then build up
long term physical and financial assets. But a few adjustments
may be necessary. If you think your home may be subject to
storm damage or flooding then do ensure you have adequate
insurance in place or perhaps review your existing level of
cover. Once there has been a serious occurrence it may be
difficult to get cover if it is not already in place. Does
your car insurance cover you for floods? If water gets inside
your engine repairs can be very expensive. It could be a good
time to review personal cover as well.
Cash reserves and banking
As always, make sure you have adequate reserves to carry you
through any disasters, be they climate related or not. As
a foreigner in Bali you should be sure to keep funds in your
home country or in an offshore bank. The accounts should be
accessible by credit card or debit card wherever you are in
the world.
What about investments?
For many people their home is by far their greatest asset.
Many people have no assets other than their home. This is
very risky since if the home is lost through severe flooding,
earthquake, tsunami or what have you, the situation can be
critical if you do not have financial assets in a safe jurisdiction
that you can tap into at any time. Even if you have insurance
and your damaged home is repaired you may find the value falls
dramatically or it could become impossible to sell. At least
you have a chance to rebuild elsewhere if you have built up
financial assets over the years.
Are there investment opportunities?
On the brighter side, for those who can afford it there are
indeed opportunities. One of the undoubted causes of global
warming is the increased burning of fossil fuels. Until the
world’s oil reserves run out this is unlikely to be
reversed. In the meantime, demand for oil is continuing to
surge and we are all paying more for it at the pumps or via
higher air fares. One way to at least share in some of the
profits that are being made is to invest in energy related
funds. One such fund that invests mainly in oil service companies
has made over 200% in the past five years. What happens when
the oil runs out? Other energy sources will have to take its
place. You can get on this bandwagon now via a ‘new
energy’ fund.
What about agriculture?
This is an area which must surely produce higher returns in
the future. Not only is there increasing pressure on the world’s
ability to feed a rapidly growing population, particularly
in the developing world, but climate change is starting to
have a negative impact on food production. Worse, as far as
consumers are concerned, governments and oil companies are
now looking at crops as an alternative source of fuel. Which
means there will be intense competition for basic foodstuffs
such as wheat, corn, soy beans etc. Hopefully this will not
extend to Bali’s rice crops! Once again it is possible
to mitigate the downside by investing in the asset class under
pressure. You can now invest in an agriculture fund that should
reflect the inevitable price rises we will see in years to
come.
Very shortly yet another fund is to be launched. It will actually
be a ‘climate change’ fund and will invest in
companies that stand to benefit from the change.
Should you be investing in these funds? Yes, provided you
already have some broad based conventional investments and
good cash reserves. The funds are likely to perform well over
time but all such funds tend to be volatile and not suitable
therefore for the smaller investor. Smaller investors are
more likely to need cash at short notice and this could coincide
with a time when the fund falls, as exotic types of funds
are liable to do in the short term. If your resources are
limited then it may be more appropriate to invest in a few
sandbags to keep the flood waters out!
Colin Bloodworth is a senior adviser with Financial Partners
International. The opinions expressed are his own. If you
have any questions relating to personal finance you may contact
him at 021 520 8099 or colin.bloodworth@financial-partners.biz
