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Beware The Allure of Free

Posted By Jim On 11/26/2007 @ 5:18 pm In Personal Finance | 4 Comments

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 [3], 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?


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