Too often I hear people talking about disaster scenarios where they protect their savings with gold or some other supposedly safe investment in case stocks go to zero. Do these people understand what it would take for stocks to be wiped out completely?
For a stock to go to zero, the business must be wiped out. For a broad stock index to go to zero, all the businesses making up this index must be wiped out. Just imagine it: no internet service providers, no telephone company, no cell phone network operators, no cable companies, and no grocery stores.
Without internet connectivity, telephone, cell phones, or food, exactly what would we buy with our chunks of gold? I certainly wouldn’t trade a can of beans for a bar of gold in such a desperate situation.
No doubt the remedies governments are using to deal with recent financial crises will have negative financial effects down the road, but I have a hard time seeing how the average person can protect himself from a widespread disaster.