Fossil Fuels May Ruin Your Retirement

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The world seems to be awakening to the fact that if we all continue on the 'business as usual', burn-fossil-fuels-until-they're-gone trajectory, we can't stop or slow global warming.

At the same time, the world's biggest energy companies, according to a report from Carbon Tracker, are sitting on a virtual mountain of coal, oil, and gas.

If we want to stay within calculated 'reasonable limits' and reduce our warming to less than two degrees Celsius, researchers at the Potsdam Institute have helpfully provided us with a 'carbon budget' for the next 40 or so years.

And now it gets a bit tricky. The world's fossil fuel reserves (also known as 'assets'), far exceed that budget. So will we collectively use them, and take the unknown consequences of temperature rises? That's something the countries of the world will try to work on at the next round of climate talks in Paris next year.

If we can't or don't use them, at some point these fossil fuel assets become known as 'stranded'. And even if we do continue on our same fossil-using path, the assets may be creating what analysts are calling a 'carbon bubble' in financial markets. Of course, we know what can happen with market bubbles.

Which is where your and my retirement comes in: if you have retirement investments in stock or mutual funds, chances are you own a piece of those big energy companies, such as ExxonMobil.

Here's what the Carbon Tracker analysts says:

We believe investors need to respond to this systemic risk to their portfolios and the threat it poses of a carbon bubble bursting.

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If the scenario seems far-fetched, well, it may be. Sometimes however, these market forces can shift more quickly than people - or world markets - anticipate. Students at hundreds of colleges and U.S. universities (shown in above map) have already begun campaigns to get their institutions to divest from investments in fossil fuel companies.

What to do? Well, one choice is to transfer your retirement savings to socially responsible (SR) funds. That may change or lower your returns. A few SR funds have a good return history. Check as a place to start your quest.