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Beware The Allure of Free

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Zecco offers 10 free trades a month. Buffets offer all you can eat, which means you can get as much as you want for no additional cost. Casinos offer you all sorts of free “comps” to get you to come back into their casino. All this stuff is free, but it doesn’t meant that you should take advantage of it!

With Zecco, free trades sound great in principle because free is always good but they’re actually bad for most of us. The prevailing attitude, to which I subscribe to, is that you should be buying and holding, not actively trading a lot. If you’re a day trader with your finger on the pulse on the market, perhaps free trades is right for you. However, if you’re a “check your stocks at work for a few minutes each day” type of person, then ten trades a month is too much and feeling compelled to use them is dangerous. Buying and holding is preferable because you let time smooth out the volatility in the market, you let time lower your tax liability, and you let time temper your emotions so you don’t make rash decisions. Free trades are great, as long as you don’t feel compelled to use them.

How about buffets and their great all you can eat nature? For a while I would feel stuffed after going to buffets because I felt compelled to “eat my money’s worth” and eat as much as I could. If I paid one flat price and could eat as much as I could, I would try to eat as much as I could! Except that’s horrible! I’d feel bloated, then tired, then lazy the rest of the day… all because I felt compelled to take advantage of the free offer. Buffets are great, as long as you don’t feel compelled to actually eat all you can eat.

Lastly, casinos give you complimentary items just to get you to come back. They’ve done they math, they realize that every person they get into the casino will earn them a certain number of dollars. If they can get you back for the cost of a breakfast, that’s a win-win for both sides. You get the breakfast, they get the business, everyone wins… except for you because you probably will lose more than the cost of the breakfast right? :) So, comps are great, as long as you recognize what they’re trying to do (I can’t possibly say, don’t gamble because that’s how you got the comps in the first place!)

So… next time you see something advertised as FREE, think about it for a second. It might be no cost financially at the moment, but is it really the right decision?

{ 4 comments, please add your thoughts now! }

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4 Responses to “Beware The Allure of Free”

  1. vh says:

    Interesting.

    How about those among us who take advantage of these alleged lagniappes? Presumably there aren’t enough such operators to make it unprofitable to offer so-called “deals,” but….

    In college, my roomie & I used to hang out with the four guys who rented the apt next door, two of whom were athletes and the other two of whom were no pikers in the calorie-burning department. They had scoped out every all-you-can-eat joint in the city, and every now & then they would invite us girls to join them at the trough. Their capacity for shoveling in food defied belief. The football player, in particular, was a champion chowhound: one evening he went back five times to stack his plate halfway to the ceiling.

    It made me feel guilty to take more than one plateful, lest the proprietors go broke.

    More recently, I took up with The Emperor of Cheap, who for a while imagined himself to be a mighty fine gambler. He spent enough time at the poker tables in Laughlin, Nevada, to land us free hotel rooms AND whole weekends of comped breakfasts, lunches, and dinner. To the rational, it seemed like hanging a sign around his neck: “Please! Take advantage of me!” However, that’s not what happened at all.

    He would budget a certain amount of cash for gambling — far less than you or I would consider reasonable to spend on a two- or three-day out-of-town vacation at a nice hotel — and when that was gone, he would stop. The fact that he stopped betting at the tables on, say, Saturday morning did not negate the free room on Saturday night or the free breakfast Sunday morning.

    Poker is a game of chance and skill. As a practical matter, to the extent poker requires skill, he was pretty good at it. And sooo…. He often managed to make his gambling budget go quite a long way — apparently far enough to convince the casino proprietors that they had a pigeon on their hands, because even though he never exceeded his budget, they kept on offering him hotel and meal comps.

    While you certainly are right that only the Dumb and the Feckless accept these “gifts” naively, anecdotal evidence suggests that the Wily and the Gluttonous can use them to their advantage.

  2. Evan says:

    BFP,

    I don’t understand your logic? I pay a very small amount per automatic trades for my balanced 6 ETF portfolio ($2 per position per month). But if Zecco is willing to give it for free, why wouldn’t I?

    The only basis I can come up with is – the mutual fund company will let you do it for free? But I only have my qualified money with a mutual fund and NQ with ETFs.

    Please Explain (with or without analogies to wonderful Buffets)

  3. jim says:

    I’m not saying free is bad, I’m saying feeling compelled to use it because it’s free is bad. Free trades from Zecco is great, feeling like you should trade a lot because they are free is bad.

  4. Hawkmoon Nine says:

    This would work great with a Buy & Hold strategy. Say you own 10 stocks (or ETFs) and put money into your account each month, you could dollar cost average into each for no fees. I don’t think many day traders would sign up for only 10 trades a month anyway, however for “regular” folk, this might be a pretty good thing, and yes, you have to be disciplined and no succumb to trading too often.


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