In the financial-services industry, ‘free’ simply does not exist
It cannot, because the goal is not to give away products or services; it is to make money, writes Barry Ritholtz
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 then 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 m...
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