The free lunch as the saying goes refers to the 19th-century practice in American bars of offering a "free lunch" to entice drinking customers. Obviously, bars weren’t in the business of giving away their food and drink. It simply occurred to them that giving away overly salted food was good for their business!
Today’s free lunch, or dinner offers have moved from bars to restaurants with financial advisors offering “Retirement Seminars” that pitch high commissioned investment products, or “Estate Planning/Medicaid Planning”. Their canned presentations and documents typically create illiquidity with irrevocable trusts and annuities. If you can resist the pitch there can be a free lunch or dinner. But some poor attendees must be paying as my inbox is filling up with emails from companies that offer canned seminar services “guaranteed to fill a room”!
While most people understand the concept of TNSTAAFL when it comes to free offers, there seems to be no hesitancy to jump on board the free investment advice bandwagon. With interest rates falling to zero, market volatility on the upswing, and the doom/ & gloom media still projecting a recession. This is fertile ground for bad investment advice as well as outright scams.
So let me offer a couple of thoughts for your protection.
- Interest rates are fairly orderly. High interest rates accompany higher risk investments. For you to receive an interest rate return on your investment, someone has to be paying that interest rate, plus a spread to the middleman. No one pays a higher interest rate than they have to. High interest rate = high risk. TNSTAAFL.
- Remember the can’t miss investment opportunity in 3D Printing? In January 2017 The Motley Fool was hyping 3D Systems (DDD) and Stratasys, LTD (SSYS). DDD opened 2017 at $13.63 a share, went as high as (using weekly data) $23.70 in May and is now down to $8.99. Not exactly a wealth builder. TNSTAAFL.
- And how many of you, thought you’d get in at the bottom for “weed” stocks? I can’t even begin to name all the sources that were touting Cannabis as THE next big thing. Maybe you decided to be prudent and go with the biggest provider in Canada, where there are no legality issues. Canopy Growth (CGC) opened on the NYSE on May of 2018 $25.78. Today (10/31/2019) it is trading at $20.06. Instead of money flowing to the legal producers, most pot sales are still illegal. Legal, regulated pot cannot match the free market price available on the black market. TNSTAAFL.
- Free investment advice is worth less than what you pay for it. By the time you hear about the next big thing, the smart money has been made. The big boys are now looking to unload their shares to the mass market to lock in their profits. TNSTAAFL
The corollary to TNSTAAFL is If It Seems Too Good to Be True It Probably Is (IISTGTBTIPI).
Always be wary of investment ideas that sound too good to be true. There are a lot of unscrupulous people trying to get you to part with your hard-earned money, do not fall prey to their techniques.