There is a basic, fundamental foundation upon which all of economics is built: everything has a cost. The effort to get around this concept is described informally by the phrase “there’s no free lunch.”
What is a free lunch? The notion historically springs from the offer by saloon owners of a free meal to customers. Of course, the price of the lunch is included — hidden if you will — in the cost of the drinks.
Which brings us to today’s discussion of “cheap” versus “free.”
“Cheap” is simply less expensive than dear. We understand cheap, and appreciate all of its advantages. Experience teaches us that cheap is good for investors, as costs compound over time and act as a drag on returns.
“Free,” on the other hand, when offered by any for-profit company, should be approached warily. “Free” rarely means costless; it invariably entails concealed charges and expenses. Free requires you to read the fine print, where you learn that free can be very expensive. “Free,” in some areas such as mutual funds, is a form of marketing, a loss leader. It can also be a set up for a bait and switch, in which a free product is swapped out for a higher-cost substitute.
To be sure, some things really are free. In a soup kitchen, the meals are free. Free is the core principle of charity, where the concept of imposing the costs on the beneficiary would upend the entire equation. And there is a cost, but it’s the donors who bear it.
In the financial-services industry, free simply doesn’t exist. It can’t, because the goal isn’t to give away products or services; it’s to make money.
Do you doubt this truism, which often is overlooked by so many in their rush to pay less?
Perhaps a few examples might bring you around – and these are from companies that have a deep selection of worthwhile products and services for which they charge a fair price (more or less).