On my way home from Muskegon, Michigan recently, along the interstate in the northern part of Indiana, I saw a big, bold billboard. I will show you what it said at the very, very end of this blog, so just wait for it and don’t read ahead.
Today, I want to discuss how there really is no “free” lunch. There is no special deal that anyone is getting in life. There is no deal when you are exposed to all of the advertising that we see each day The cost is always embedded in everything that we buy. This time of the year, we will often see signs at car dealerships or tire stores saying “Buy 3, get the 4th tire free”. There is no free 4thTire. it's embedded price is in the cost of the first 3 tires.
What about this: there are “free” youth diet pills that you can order online and all you have to pay for is postage and handling… where do you think the cost is there? I am quite sure that the makers of this wonder drug has embedded the cost into the price of the ‘handling’ to be able to pay for these super-duper pills that are going to make you healthier and stronger and more vibrant.
What about two years’ worth of free oil changes with the purchase of a new automobile. The oil changes are not free: they are embedded in the price of the vehicle that you bought.
What about 50% off deals? If you're buying something 50% off, that means that the price was probably twice as expensive as what it needed to be in the first place to actually sell the product to begin with.
Free shipping? There is no such thing as free shipping…shipping costs money. The free in the shipping is embedded in the price of the product which you bought.
Again, what is this all about? Does anyone even pay attention any longer that when gas is sold (look at the very, very tail-end look at the price of gas) at 9/10 of one penny as the very last number? They don't want to have to round it up and make it look like you're actually spending the amount of money that you are really spending. Instead, they rounded down so it seems less than what it really is. That 9/10s of a penny actually was created back in the 1930s with the Revenue Tax Act of 1932.
What about 0% interest for the first 5 years of an automobile loan? Okay, there's no such thing as 0% interest. The interest costs, which they don't have to tell you, are embedded in the cost of the automobile. There is no free loan. The cost is hidden elsewhere.
Things are hidden in different ways. In fact, they're not really even hidden. Sometimes, they're in plain sight. When I look at Securities, I look at the same documents that you receive. Most people receive what is termed as a “summary prospectus”. It might be ten pages in length, and it shows you the fees and the costs and everything that are embedded in the cost of that particular security that you might be buying. However, if you look at what is referred to and what is filed with the SEC as the “statutory prospectus”, which I don't believe I've ever had a client in 35 years actually read this, but it's given if asked, the statutory prospectus can be over 100 pages. That’s a lot of pages to go through to find out how a particular security is built.
So, the whole gist of this blog today is to basically tell you that there is no "free" lunch. Everybody wants to believe that they're getting something for nothing, and that just doesn't exist. The cost of everything is embedded in the cost of the product that you are buying. Back to the billboard: this is what made me think of this topic on my way back from Michigan recently as I was looking at a billboard along the interstate in the northern part of Indiana:
…Really?...
