Author Topic: Climate Change & Safe Withdrawal Rates  (Read 3280 times)

savage_detective_stache

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Climate Change & Safe Withdrawal Rates
« on: October 18, 2019, 06:38:09 AM »
Let's say approximately 10% of GDP will vanish by the end of the century due climate change.  How does that affect investment returns, and how does that impact safe withdrawal rates?

Some back of the napkin math-

Assuming climate change economic impacts will be linear, we're talking about 0.125% reduction in GDP growth per year (I don't know how to back into the compounded rate).  Assuming over the long run GDP and portfolio returns move somewhat in tandem, that is a 0.125% slower rate of return for investments.

Would this simply reduce your SWR from 4% to 3.87%?  Or would the impact be even smaller?  Seems small enough to be negligible.

Am I thinking about this right?

maizefolk

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Re: Climate Change & Safe Withdrawal Rates
« Reply #1 on: October 18, 2019, 07:11:52 AM »
Assuming climate change economic impacts will be linear, we're talking about 0.125% reduction in GDP growth per year (I don't know how to back into the compounded rate).  Assuming over the long run GDP and portfolio returns move somewhat in tandem, that is a 0.125% slower rate of return for investments.

Would this simply reduce your SWR from 4% to 3.87%?  Or would the impact be even smaller?  Seems small enough to be negligible.

Am I thinking about this right?

I think the underlined bit is the crux of the problem of answering your question. The math on what a safe withdrawal rate ends up being is much more vulnerable to increases in volatility than decreases in long term average growth.

I can see the argument for the effects of climate change being mostly linear (slowly decreasing crop yields, slowly increasing energy costs). But I can also see the argument for them coming in concentrated bursts that would do a lot more damage to future safe withdrawal rates (sudden collapses in parts of real estate market when banks finally stop offering new 30 year mortgages houses on the coast in Miami; wars fought between major countries over access to fresh water or over conflicts between sovereignty vs climate impact like we saw when Brazil started burning much more of the amazon rainforest this past year).

TheAnonOne

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Re: Climate Change & Safe Withdrawal Rates
« Reply #2 on: October 18, 2019, 07:35:30 AM »
Let's say approximately 10% of GDP will vanish by the end of the century due climate change.  How does that affect investment returns, and how does that impact safe withdrawal rates?

Some back of the napkin math-

Assuming climate change economic impacts will be linear, we're talking about 0.125% reduction in GDP growth per year (I don't know how to back into the compounded rate).  Assuming over the long run GDP and portfolio returns move somewhat in tandem, that is a 0.125% slower rate of return for investments.

Would this simply reduce your SWR from 4% to 3.87%?  Or would the impact be even smaller?  Seems small enough to be negligible.

Am I thinking about this right?

If all it does is lower the SWR to 3.87 that would probably be a best case.

That being said, humans are amazingly clever, and, I don't see that major loss of economic output. 0.125% IS pretty minor. We all save more than that on expense ratios vs. the average public :)

savage_detective_stache

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Re: Climate Change & Safe Withdrawal Rates
« Reply #3 on: October 18, 2019, 09:58:44 AM »
Quote
But I can also see the argument for them coming in concentrated bursts that would do a lot more damage to future safe withdrawal rates

This is a great point I had missed.  It is all about the sequence / timing of withdrawals that ultimately determine the success of your long term portfolio, as MadFientist has preached.  This would seem to be the bigger risk.  With the logical conclusion that you just need to be more flexible, I guess.  More willing to pause withdrawals and find another way to make some $$ during more likely and more severe downturns.

Buffaloski Boris

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Re: Climate Change & Safe Withdrawal Rates
« Reply #4 on: October 18, 2019, 04:59:31 PM »
The end of the century is 80 plus years from now. We canít predict GDP numbers with any real certainty a year from now let alone 80 years from now. And then there is the question of whether or not climate change will be a net negative influence on GDP. I doubt it will. There are all sorts of industries that are emerging as a result that will add to GDP. In the end, I think itís another one of those myriad scenarios that are best addressed through a diversified portfolio and a conservative WR.

maizefolk

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Re: Climate Change & Safe Withdrawal Rates
« Reply #5 on: October 18, 2019, 05:25:30 PM »
Quote
But I can also see the argument for them coming in concentrated bursts that would do a lot more damage to future safe withdrawal rates

This is a great point I had missed.  It is all about the sequence / timing of withdrawals that ultimately determine the success of your long term portfolio, as MadFientist has preached.  This would seem to be the bigger risk.  With the logical conclusion that you just need to be more flexible, I guess.  More willing to pause withdrawals and find another way to make some $$ during more likely and more severe downturns.

Exactly.

In a zero volatility world a 100% stock portfolio could support 6.8% inflation adjusted withdrawals a year forever and about 7.8% if you only need it to last 30 years. Call it 15 years worth of expenses. The other 10 years or so of expenses required to hit a 4% withdrawal rate are there to act as a protective cushion against sequence of returns risk.

theolympians

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Re: Climate Change & Safe Withdrawal Rates
« Reply #6 on: October 19, 2019, 01:31:44 PM »
What is the 10% assumption of loss based on? What I am asking is why not 5%, or 15%, or 50% loss? Why not increased GDP of 10% or any other number?

savage_detective_stache

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Re: Climate Change & Safe Withdrawal Rates
« Reply #7 on: October 20, 2019, 08:41:39 PM »
10% is based on a research article I found through google.

beltim

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Re: Climate Change & Safe Withdrawal Rates
« Reply #8 on: October 21, 2019, 02:42:08 AM »
There is essentially no correlation between GDP growth and stock market returns. So I doubt that there is any correlation between GDP growth and safe withdrawal rate.

savage_detective_stache

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Re: Climate Change & Safe Withdrawal Rates
« Reply #9 on: October 23, 2019, 07:06:17 AM »
There is some relationship between equities and GDP it would seem at the global level, given things like the Buffet indicator.  Corporate profits and GDP have trended similarly at least over time.  Regardless of the exact correlation there is definitely a directional relationship there (stock prices go down during a recession, etc.).

More new commentary about the difficulty of estimating economic costs of climate change and how we might be underestimating it on the whole - https://www.nytimes.com/2019/10/23/opinion/climate-change-costs.html

insufFIcientfunds

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Re: Climate Change & Safe Withdrawal Rates
« Reply #10 on: October 23, 2019, 09:36:59 AM »
Climate change will offer someone the opportunity to capitalize from a business perspective, so the assumption GDP/stock market/whatever might underestimate the ingenuity of human beings. This is especially true when it is a chance for humans to make money.

You also reference the NY Times. It looks like a Harvard Professor and someone from a climate change institute co-wrote the article (aka liberals). I'll take that with a VERY thin grain of salt.

maizefolk

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Re: Climate Change & Safe Withdrawal Rates
« Reply #11 on: October 23, 2019, 09:46:47 AM »
I'll take that with a VERY thin grain of salt.

<Off topic>
If a person is more skeptical of something, wouldn't they take it with a larger grain of salt rather than a smaller one? Also I think you must be using pretty fancy salt if you're getting flake salt that can be thicker or thinner rather than regular ground salt which will have larger vs smaller particle sizes (grains).
</Off Topic>

waltworks

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Re: Climate Change & Safe Withdrawal Rates
« Reply #12 on: October 23, 2019, 11:11:24 AM »
Pfah, you're probably one of those deep-state Harvard Salt Professors.

In 'Merica we like our salt thin and our malapropisms and mangled metaphors plentiful, damnit.

-W
« Last Edit: October 23, 2019, 12:09:36 PM by waltworks »

insufFIcientfunds

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Re: Climate Change & Safe Withdrawal Rates
« Reply #13 on: October 23, 2019, 11:13:26 AM »
lol we done sure do!

grettman

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Re: Climate Change & Safe Withdrawal Rates
« Reply #14 on: October 29, 2019, 05:07:55 AM »
Why assume GDP will decline because of climate change?

For many, the climate change movement is not about saving the planet.  Itís about transferring power and wealth from status quo (oil companies) to other companies and industries.  Pro status quo politicians will be replaced with people who want to go after cow farts, build bridges to Hawaii, and eliminate air travel (while flying around in private jets to talk about how evil plane travel is).

For instance,  green new deal price tag is about $90 trillion.  $90 trillion will transfer from one area of economy to another. 

If anything, worry about how you will handle a higher tax rate environment in the future because government will need to expand to mismanage this $92 trillion solution.  More agencies, government employees and etc will need to exist...




beltim

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Re: Climate Change & Safe Withdrawal Rates
« Reply #15 on: October 30, 2019, 04:15:14 PM »
There is some relationship between equities and GDP it would seem at the global level, given things like the Buffet indicator.  Corporate profits and GDP have trended similarly at least over time.  Regardless of the exact correlation there is definitely a directional relationship there (stock prices go down during a recession, etc.).

More new commentary about the difficulty of estimating economic costs of climate change and how we might be underestimating it on the whole - https://www.nytimes.com/2019/10/23/opinion/climate-change-costs.html

Please tell me what the relationship between equities and GDP growth is.  Here's 50 years of data to get you started:

waltworks

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Re: Climate Change & Safe Withdrawal Rates
« Reply #16 on: October 30, 2019, 05:14:03 PM »
That's just showing you that stock returns are noisy data. What did you pull it from? What a bizarre chart. I mean, yes, there was a market crash in there so I guess if you want to see how a big market crash affected your returns to that point, it's interesting... but still. Weird.

Regardless, it does indeed show a generally positive correlation between GDP and stock market number, though clearly it's not a perfect correlation.

-W
« Last Edit: October 30, 2019, 06:09:08 PM by waltworks »

GuitarStv

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Re: Climate Change & Safe Withdrawal Rates
« Reply #17 on: October 30, 2019, 05:22:25 PM »
There is some relationship between equities and GDP it would seem at the global level, given things like the Buffet indicator.  Corporate profits and GDP have trended similarly at least over time.  Regardless of the exact correlation there is definitely a directional relationship there (stock prices go down during a recession, etc.).

More new commentary about the difficulty of estimating economic costs of climate change and how we might be underestimating it on the whole - https://www.nytimes.com/2019/10/23/opinion/climate-change-costs.html

Please tell me what the relationship between equities and GDP growth is.  Here's 50 years of data to get you started:


That's easy.  It's boobs.


beltim

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Re: Climate Change & Safe Withdrawal Rates
« Reply #18 on: October 30, 2019, 07:24:55 PM »
That's just showing you that stock returns are noisy data. What did you pull it from? What a bizarre chart. I mean, yes, there was a market crash in there so I guess if you want to see how a big market crash affected your returns to that point, it's interesting... but still. Weird.

Regardless, it does indeed show a generally positive correlation between GDP and stock market number, though clearly it's not a perfect correlation.

-W

What?  You see a positive correlation there?  A trend from lower left to upper right?

beltim

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Re: Climate Change & Safe Withdrawal Rates
« Reply #19 on: October 30, 2019, 07:33:41 PM »
Here's more data.  I look forward to seeing the results of GuitarStv's Rorschach test.




GuitarStv

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Re: Climate Change & Safe Withdrawal Rates
« Reply #20 on: October 30, 2019, 07:37:25 PM »
IT'S BOOBS AGAIN!

Telecaster

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Re: Climate Change & Safe Withdrawal Rates
« Reply #21 on: October 30, 2019, 07:40:37 PM »
Let's say approximately 10% of GDP will vanish by the end of the century due climate change.  How does that affect investment returns, and how does that impact safe withdrawal rates?...

...Am I thinking about this right?

No.  All of us will be dead by the end of the century. 


waltworks

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Re: Climate Change & Safe Withdrawal Rates
« Reply #22 on: October 30, 2019, 07:44:27 PM »
Remember what you're graphing there: EXCESS returns from equity (above and beyond GDP growth). If you did one with just equity growth period vs GDP it would look very different. Presumably this is a few countries for year after year after year (ie a data point for Germany 1975, Germany 1976, etc), since there aren't anything like that many developed countries with stock markets to track over that time period, at least on this planet. So the GDP number for each year can correspond to any sort of stock market number (you could have a huge crash that year, or an awesome year, since the returns vary a ton year to year). You can have a pretty good GDP year and a stock market correction, and you can have a bad GDP year and the stock market just chugging along. Over the course of 50 years, your GDP number is doing to drive things to a considerable extent, but that's not what you're showing us.

So basically, your graph isn't telling the story you want because it's not a graph of what you think it is. Like the other graph, which was about how bad the 2007 market crash was for different markets.

-W
« Last Edit: October 30, 2019, 07:55:24 PM by waltworks »

beltim

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Re: Climate Change & Safe Withdrawal Rates
« Reply #23 on: October 30, 2019, 08:15:14 PM »
Remember what you're graphing there: EXCESS returns from equity (above and beyond GDP growth). If you did one with just equity growth period vs GDP it would look very different. Presumably this is a few countries for year after year after year (ie a data point for Germany 1975, Germany 1976, etc), since there aren't anything like that many developed countries with stock markets to track over that time period, at least on this planet. So the GDP number for each year can correspond to any sort of stock market number (you could have a huge crash that year, or an awesome year, since the returns vary a ton year to year). You can have a pretty good GDP year and a stock market correction, and you can have a bad GDP year and the stock market just chugging along. Over the course of 50 years, your GDP number is doing to drive things to a considerable extent, but that's not what you're showing us.

So basically, your graph isn't telling the story you want because it's not a graph of what you think it is. Like the other graph, which was about how bad the 2007 market crash was for different markets.

-W

The excess return is the return over the risk-free rate, not GDP.

You're doing a lot of talking about my graphs not being what I think they are for being wrong about them yourself.

For the first graph, just look at one color.  As GuitarStv brilliantly illustrated, there is no correlation between GDP growth of a country and the change in equities in the country.  It's certainly not positive, as you posited without showing evidence.  The second graph also shows no correlation between equity returns and GDP growth.  The first chart showed 50 years of data, and the second showed ~40 years, one at a time.  I welcome any data, or analysis of the above data, that shows any positive correlation whatsoever between equity returns and GDP growth.

waltworks

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Re: Climate Change & Safe Withdrawal Rates
« Reply #24 on: October 30, 2019, 09:10:52 PM »
Your first graph shows that equities and GDP growth are very strongly correlated, actually. Got positive GDP growth? You'll have positive equities growth too. They don't correlate perfectly, of course, but if you found a country with negative GDP over that time period (and a functioning stock market for that entire time, which is unlikely) you'd probably see negative returns.

I mean, just think about what it would mean to have negative GDP growth over 50 years! There's very little chance a country would even *exist* at that point. Even countries in Europe that were destroyed twice in the first half of the 20th century didn't manage to pull off negative GDP.

Your second graph shows individual years - ie, 1980 Germany (I think). It shows the GDP number for that year, and the equities number. But there's not much reason to believe those numbers would correlate very strongly in a given year anyway. You could probably make an argument for a relationship with some kind of lag built in (ie economic crash leads to market crash in 9-12 months?), I guess, but I don't think that's what the creators of the graph did.

Try plotting your data from the first graph (which is what we're actually interested in) in the same format as your second (which is about something else, though I confess I'm not very sure what, unless it's to prove that single-year GDP numbers don't have much to do with single-year stock market numbers, or that stocks mostly go up). You'll see all the data points in the upper right (positive/positive) quadrant, right? Now what does the pattern look like? All the countries with positive GDP numbers are clustered in the positive equities return corner. If you can find some negative GDP countries, they're almost certainly going to have negative equities numbers as well, but like I said earlier, those countries (long term economic collapse with a modern functioning stock market the whole time) don't exist.

-W


« Last Edit: October 30, 2019, 09:20:03 PM by waltworks »

waltworks

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Re: Climate Change & Safe Withdrawal Rates
« Reply #25 on: October 30, 2019, 09:31:19 PM »
I just ran the numbers for the S&P (US) since I couldn't believe them on the graph. ~2.5% (and then 1.5%!) for the US over that time period? WTF?

Wherever those numbers are from, they're completely wrong.

Real returns for 1958 to 2007 for the S&P 500 (I just chose January for both years, to miss the crash, since the chart is trying to compare them...I think):
3.3% (ignoring dividends)
6.6% (dividends reinvested)

If you run through December 2008 (to make sure we capture the crash) instead:
1.6% (ignoring dividends) - this one is actually right on the graph.
4.9% (dividends reinvested)

So no, if you invested $1000 in 1958 in the S&P 500 and held on for 50 years, you did not end up with only $2100 to show for it in real dollars. You ended up with more than 5 times that much, $11k or so.

You can run any set of S&P dates you want here:
https://dqydj.com/sp-500-return-calculator/

Where are you getting this stuff?

-W
« Last Edit: October 30, 2019, 09:45:23 PM by waltworks »

beltim

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Re: Climate Change & Safe Withdrawal Rates
« Reply #26 on: October 31, 2019, 02:27:25 AM »
First:
https://www.msci.com/documents/10199/a134c5d5-dca0-420d-875d-06adb948f578

Second:
https://static.twentyoverten.com/Economic_Growth_and_Equity_Returns.1477273410926.pdf

However, your reply indicates a fundamental misunderstanding of correlation.  If both GDP growth and equity returns are positive, that does not mean that there is a positive correlation.  A positive correlation would mean that the larger the GDP growth, the great the equity return.  And that simply does not exist no matter what data you use.

waltworks

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Re: Climate Change & Safe Withdrawal Rates
« Reply #27 on: October 31, 2019, 08:19:45 AM »
If both GDP growth and equity returns are positive, that does not mean that there is a positive correlation. 

No, that's exactly what correlation is. If one is positive, so is the other. Again, it's nowhere near a perfect correlation - but if you had negative GDP growth for 50 years, what do you think your equity returns would be? Could you make a prediction based on positive GDP and positive equity numbers, or not?

Can you find an example of (again, with dividends reinvested so the total return makes sense) a country with positive GDP for 50 years and negative equity numbers? If not, why not?

-W




MDM

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Re: Climate Change & Safe Withdrawal Rates
« Reply #28 on: October 31, 2019, 10:05:45 AM »
Gotta go with beltim on this one.

See Positive Correlation and Negative Correlation for details.

E.g., if equity returns were related to GDP growth by the equation "Equity Return = 10% - GDP growth", there would be perfect negative correlation between them, despite all values being positive if GDP growth < 10%.

waltworks

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Re: Climate Change & Safe Withdrawal Rates
« Reply #29 on: October 31, 2019, 10:32:17 AM »
Sure, you can construct anything. But if you go run a correlation coefficient on just this data, you'll get some correlation. If you start throwing in other variables, that correlation might disappear, but we don't have any other variables to play with here. We have a bunch of places with positive GDP growth and positive equities numbers - which is in fact what we'd expect. Again, if you have strongly negative GDP over a long time... you will probably have equities that have gone to zero as well.

Really, the variables aren't even independent of each other, of course. A great run in the stock market has positive effects on GDP (more investment money starting businesses/funding new ideas/etc), and economic growth has positive effects on the stock market (companies make more money).

If they had nothing to do with each other/were uncorrelated, we'd have examples of countries with 50 years of economic growth and net negative equities numbers over that same time period, right? Why don't we see any of those cases?

-W

waltworks

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Re: Climate Change & Safe Withdrawal Rates
« Reply #30 on: October 31, 2019, 10:35:41 AM »
Here's corporate profits (not a bad analogue for stock returns, though P/E ratios of course vary quite a bit) vs GDP.

« Last Edit: October 31, 2019, 11:22:40 AM by waltworks »

waltworks

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Re: Climate Change & Safe Withdrawal Rates
« Reply #31 on: October 31, 2019, 11:45:33 AM »
Thought experiment:

Country A and Country B both are stable economies with established stock markets that represent a significant, stable chunk of their actual economies.

Over 100 years, Country A enjoys 5% real GDP growth rate. Country B has none whatsoever - zero growth. Both countries are still politically viable and still have stock markets at the end of the 100 year period.

Now, which country should you invest in if you're interested in getting the best returns on your equity investment? If GDP and equity returns are truly uncorrelated, it's a coin flip, right? But does anyone here actually think that's the case?

-W

YoungInvestor

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Re: Climate Change & Safe Withdrawal Rates
« Reply #32 on: November 01, 2019, 06:08:23 AM »
Assuming climate change economic impacts will be linear, we're talking about 0.125% reduction in GDP growth per year (I don't know how to back into the compounded rate).  Assuming over the long run GDP and portfolio returns move somewhat in tandem, that is a 0.125% slower rate of return for investments.

Would this simply reduce your SWR from 4% to 3.87%?  Or would the impact be even smaller?  Seems small enough to be negligible.

Am I thinking about this right?

I think the underlined bit is the crux of the problem of answering your question. The math on what a safe withdrawal rate ends up being is much more vulnerable to increases in volatility than decreases in long term average growth.

I can see the argument for the effects of climate change being mostly linear (slowly decreasing crop yields, slowly increasing energy costs). But I can also see the argument for them coming in concentrated bursts that would do a lot more damage to future safe withdrawal rates (sudden collapses in parts of real estate market when banks finally stop offering new 30 year mortgages houses on the coast in Miami; wars fought between major countries over access to fresh water or over conflicts between sovereignty vs climate impact like we saw when Brazil started burning much more of the amazon rainforest this past year).

From that perspective, the worst scenario (of the total effect were 10%) would be to get the full 10% right at the beginning.

In this case, 4%/1.1= 3.5% or so

ChpBstrd

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Re: Climate Change & Safe Withdrawal Rates
« Reply #33 on: November 04, 2019, 11:13:32 AM »
I would be more concerned about demographic graying in investable markets. A lack of worker supply and pressure to increase savings can wreck an economy for decades, as the Japanese demonstrated.

I would also be concerned about whether open democracies will continue to exist during our retirement timeframe. Dictatorships and oligarchies tend to seize the returns of investors through corruption or nationalization. This is how the fastest growing large economy of the past several decades (China) has delivered such mediocre returns to investors.

Climate change will wreck coastal cities, contribute to desertification, and make parts of the planet uninhabitable, contributing to the deaths of millions, but industries will move around as they always have.

maizefolk

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Re: Climate Change & Safe Withdrawal Rates
« Reply #34 on: November 04, 2019, 12:01:52 PM »
I would also be concerned about whether open democracies will continue to exist during our retirement timeframe. Dictatorships and oligarchies tend to seize the returns of investors through corruption or nationalization. This is how the fastest growing large economy of the past several decades (China) has delivered such mediocre returns to investors.

Climate change will wreck coastal cities, contribute to desertification, and make parts of the planet uninhabitable, contributing to the deaths of millions, but industries will move around as they always have.

A decade ago I would have regarded the bolded concern as ridiculous scare mongering. Now I don't know if I share your level of concern, but certainly can see how a reasonable person could arrive at that point of view about the future.

China made a lot of people very rich, they just tended to be private investors not stocks traded on public exchanges. There seems to be a lot more fraud with the #s reported by public companies, which may explain some of those issues. Companies traded in Hong Kong (many of which draw most of their business in China, but are in a legal system with stronger oversight) seem to be less of an issue.


(Comparison of the Heng Seng index in Hong Kong and the US S&P 500 1987 present).

So I guess my message is that authoritarian and non-democratic governments may not necessarily be terrible for stock returns. So ... yay I guess? :-/

AlanStache

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Re: Climate Change & Safe Withdrawal Rates
« Reply #35 on: November 04, 2019, 01:26:57 PM »
China has got some amazing things done in the last few generations (ignoring human rights...).  Consider they were largely closed off before Nixon. 

Climate change will not happen in a vacuum, you also need to think of the effects of automation, global instant communication and a winner take all economy, & more.  Personally I have invested a bit more in tech but otherwise I am not sure us small fish can do. 

regarding swr.  What are the things you will spend money on that could be affected by CC?  food - yes but food is commonly a smallish percent of a budget so even if food prices doubled or tripped how would that affect your total monthly budget?  Power - ok but residential solar + storage is becoming a very viable option for many single family homes.  Travel - air travel might get more expensive with a carbon tax but that again would likely be a smaller percent of a (discretionary) total trips cost. 

If $hit really hits the fan swr starts to not matter; if you really think things are going to go bad you should be buying seeds and bullets not VTI.



bacchi

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Re: Climate Change & Safe Withdrawal Rates
« Reply #36 on: November 04, 2019, 01:44:19 PM »
regarding swr.  What are the things you will spend money on that could be affected by CC?  food - yes but food is commonly a smallish percent of a budget so even if food prices doubled or tripped how would that affect your total monthly budget?  Power - ok but residential solar + storage is becoming a very viable option for many single family homes.  Travel - air travel might get more expensive with a carbon tax but that again would likely be a smaller percent of a (discretionary) total trips cost. 

If you rent, you may see an influx of climate refugees from Miami/Houston/Mobile moving into your landlocked city and causing local inflation. They may also have lost everything they own, which means increased property taxes to handle social services.

That's not so bad if you're a landlord. It would suck if you're in the "always rent/never own" camp.

As an aside, I know a doctor who bought a 2nd house in a town far from the coast. She uses it as a "bolt hole" when hurricanes threaten. It's not a typical 2nd house on a lake or in the mountains -- it's just a generic 1800 square foot house in a generic subdivision that's sitting empty for much of the year.

maizefolk

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Re: Climate Change & Safe Withdrawal Rates
« Reply #37 on: November 04, 2019, 01:57:10 PM »
This is mostly looking at things from the perspective of folks who are already living in climate resilient parts of the USA. If you are in a city that is likely to be rendered less inhabitable by climate change (rising sea levels in Miami, loss of water supply in Phoenix), then the opposite logic applies: those who are permanent renters will be able to move elsewhere and rent (potentially at somewhat higher rents) while people who bought houses could see the value of their houses drop to zero and not have money in their stashes budgeted for paying rent or a new mortgage in a different city.

EvenSteven

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Re: Climate Change & Safe Withdrawal Rates
« Reply #38 on: November 04, 2019, 02:00:20 PM »
This is mostly looking at things from the perspective of folks who are already living in climate resilient parts of the USA. If you are in a city that is likely to be rendered less inhabitable by climate change (rising sea levels in Miami, loss of water supply in Phoenix), then the opposite logic applies: those who are permanent renters will be able to move elsewhere and rent (potentially at somewhat higher rents) while people who bought houses could see the value of their houses drop to zero and not have money in their stashes budgeted for paying rent or a new mortgage in a different city.

We are already living in a world where "inhabitable" and "habitable" mean the same thing, so all bets are off.

AlanStache

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Re: Climate Change & Safe Withdrawal Rates
« Reply #39 on: November 04, 2019, 02:21:02 PM »
Good points, guess I was not thinking big enough.  My region has already seen some home buy outs by the city of homes that just perpetually flood.  But I would not count on that. 

maizefolk

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Re: Climate Change & Safe Withdrawal Rates
« Reply #40 on: November 04, 2019, 02:25:17 PM »
This is one of the issues I see at least one candidate talking about in the democratic primary that I wish got more press:

Change flood insurance (federal program) to pay for relocation or building a new house outside of a flood plane. Right now it usually only pays for repairing or rebuilding a house in the same flood prone area, so people with limited financial resources are trapped in houses that constantly need to be rebuilt, which sucks for them and is a huge waste of money for all of us.

WSJ had a story a couple of years ago about a house that had been flooded and had flood insurance pay out 22 times in 36 years.

https://www.wsj.com/articles/one-house-22-floods-repeated-claims-drain-federal-insurance-program-1505467830

AlanStache

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Re: Climate Change & Safe Withdrawal Rates
« Reply #41 on: November 04, 2019, 02:35:19 PM »
Any idea how much there are similar problems in the Midwest with homes along rivers that periodically flood? 

bacchi

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Re: Climate Change & Safe Withdrawal Rates
« Reply #42 on: November 04, 2019, 03:19:26 PM »
Any idea how much there are similar problems in the Midwest with homes along rivers that periodically flood?

https://www.npr.org/2019/07/25/744203716/small-towns-fear-they-are-unprepared-for-future-climate-driven-flooding

I have read about towns along the Mississippi that have flooded multiple times over a 10 year period. Some want help moving while others want to remain.

AlanStache

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Re: Climate Change & Safe Withdrawal Rates
« Reply #43 on: November 04, 2019, 04:13:04 PM »
What are the things you will spend money on that could be affected by CC?  food - yes but food is commonly a smallish percent of a budget so even if food prices doubled or tripped how would that affect your total monthly budget?
Don't be so quick to discount food. Historically the average person spent 43% of their income on it which could really create a lot of problems for people. Plus, socially, people are more likely to riot over lack of food than they are other problems that they may face. In the scheme of things, we are currently living in a period of unprecedentedly cheap food.

Right I had seen similar numbers before, but was it due to labor costs historically?  I have trouble seeing labor costs going up that much.  If food were to be come expensive it would be do to fresh water not being where/when it is needed.  But some 3/4 of the worlds ag land is devoted to raising crops to feed meat animals so there is plenty of slack in the system.  But more than likely "we rich folk" will spend X% more on beef causing staple prices to become out of reach for the poor; where X% on beef will have a small effect swr.  So swr is not the real concern but maybe we should have stock pile of bullets and seeds? 

Side note: I had an Impossible Burger last week, it was DAMN good.   



maizefolk

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Re: Climate Change & Safe Withdrawal Rates
« Reply #44 on: November 04, 2019, 04:58:19 PM »
What are the things you will spend money on that could be affected by CC?  food - yes but food is commonly a smallish percent of a budget so even if food prices doubled or tripped how would that affect your total monthly budget?
Don't be so quick to discount food. Historically the average person spent 43% of their income on it which could really create a lot of problems for people. Plus, socially, people are more likely to riot over lack of food than they are other problems that they may face. In the scheme of things, we are currently living in a period of unprecedentedly cheap food.

Right I had seen similar numbers before, but was it due to labor costs historically?  I have trouble seeing labor costs going up that much.  If food were to be come expensive it would be do to fresh water not being where/when it is needed.  But some 3/4 of the worlds ag land is devoted to raising crops to feed meat animals so there is plenty of slack in the system.  But more than likely "we rich folk" will spend X% more on beef causing staple prices to become out of reach for the poor; where X% on beef will have a small effect swr.  So swr is not the real concern but maybe we should have stock pile of bullets and seeds? 

Side note: I had an Impossible Burger last week, it was DAMN good.

I don't think it's an issue of labor costs. Even today there are large portions of the world where food is a bigger expense for most of the population than housing. The problem with food is that demand is really inelastic. If you don't have enough food, you'll pay basically any price to buy food ... until you run out of money. So even small decreases in supply can produce big increases in price for staple foods (bread, rice, dry beans, that kind of thing).

Feeding the world by 2050 is going to require an additional 50-70% increase in the amount of food produced from the same land, we are honestly, genuinely, are not on track to achieve that. In fact in a lot of the more advanced parts of the world where yields are currently the highest, they've stopped increasing at all, at least for rice and wheat.* With rising food prices, the first defense, like you point out, is to move further down the food chain. So it's likely that we in America do have a fair bit of slack in our food budgets if it came to that. But don't underestimate how fast food prices can rise once supply slips below what it takes to keep everyone fed.

... the Impossible Burger is really good though, I agree on that.

Grassini, P., Eskridge, K. M., & Cassman, K. G. (2013). Distinguishing between yield advances and yield plateaus in historical crop production trends. Nature communications, 4, 2918.

850

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Re: Climate Change & Safe Withdrawal Rates
« Reply #45 on: November 05, 2019, 04:17:30 PM »
Maybe everyone needs to shorten their time horizon. We may not even be around to spend our money beyond 20 years or so... At least according to the Pentagon:
https://www.vice.com/en_us/article/mbmkz8/us-military-could-collapse-within-20-years-due-to-climate-change-report-commissioned-by-pentagon-says

Linea_Norway

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Re: Climate Change & Safe Withdrawal Rates
« Reply #46 on: November 06, 2019, 02:05:53 AM »
Maybe everyone needs to shorten their time horizon. We may not even be around to spend our money beyond 20 years or so... At least according to the Pentagon:
https://www.vice.com/en_us/article/mbmkz8/us-military-could-collapse-within-20-years-due-to-climate-change-report-commissioned-by-pentagon-says

That's what I'm also afraid of, that the collaps of society will some in 10-20 years and things will get very ugly, maybe so ugly I don't want to be a part of it.

There are many voices that encourage us to start preparing for the inevitable, given that climate changes already have started and cannot be stopped. We should still take preventive measures to prevent it getting worse, but should also prepare for the chaos that will come. Countries will need to become more independent from other countries in food, medisin, etc. There will most likely be a chaos of many people wanting to move to a place they consider to be better. And if there are a million of them at the border, even the military wouldn't be able to stop them coming in.

So I seriously doubt we will need to use our stash more than 20 years. But in case my fears are wrong, our FIRE plan is solid.