There is no free lunch

This title refers to the saying “If something is too good to be true, it IS to good to be true”.

Maybe you mother og best friend will do amazing things for you, but firms will certainly not – unless they are paid to do so. So the saying “there is no free lunch” highlights that you should always think twice if someone offers you super high returns for no risk or products to super favorable prices.

If you have studied finance (we both have!) you will have heard the saying a million times, but it is probably because it is true in 99% of the cases. And to be fair, it actually helps you evaluate a financial product, as if the product is too cheap or have a too high return, there must be a catch.

An example is when we bought our car. All the car shops tried to sell us their super cheap car loan with an extremely low rate. We were quite amazed by how low a rate they could offer, but when we asked for the rate if it also included the cost of setting up the loan, the story completely changed. Then the loan in the bank was much cheaper, even though the rate was higher. The catch was the hidden start up cost, that many people tend to forget to think about.

Bottomline is, that it is a very good idea to have a fair amount of skepticism in a competitive field like finance.

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