Peak Oil - A Financial Planning Perspective

Have you heard about Peak Oil yet? The idea - that the world is maxing out on its ability to produce oil and will soon be faced with a dwindling supply - is capturing the popular imagination, being discussed in academic circles, books and cover articles for reputable magazines such as National Geographic and The New York Times Magazine.

Diminishing oil supplies could be considered a variable that, like inflation, should be part of a judicious financial plan. A client's choice of where to live, whether and how to commute and what kind of housing to own could all potentially be affected by the economic effects of scarce fuel. If you prepare your clients for the possibility of Peak Oil, they can choose whether and how to respond.

So what financial investing advice should you offer? It is likely that direct ownership of natural resources, especially energy and possibly precious metals, will be a good investment if there is an energy shortage and general disruption. Have an updated conversation about risk and time horizons. Suggest that clients decrease debt and increase liquidity to reduce their level of personal risk. Too many people are seriously overextended now and lack the cash reserves to weather dislocations and higher energy prices. Another strategy could be to increase exposure to energy and related areas in your clients' portfolios when appropriate.

As financial planners, we commonly describe what we do as helping our clients use their financial resources to live the lives they want. Peak Oil will challenge our skills in this area, but it offers us the chance to create a unique kind of value for our clients. We may see major changes in the ways our society operates on a day-to-day basis. People who anticipate these changes and plan ahead are likely to have a more satisfactory life than those who merely respond with shock, anger and improvisation.

(2005-10-19 10:57:43 SGT) [Energy] Permalink

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