Free Clowns with Purchase of 401(k)
Part 1: Thinking about Free
I bet, if you wanted a clown to come to your birthday, there is someone out there, somewhere, who would do it for free. I base this on the fact that I played DJ at several of my kids’ school dances for free because I love to DJ. I suspect there is someone who loves being a clown enough to be a clown for free. But, how do you find that person? Only a foolish person would pay to advertise a free service, so unless you already know the clown (possibly your uncle), it will be tough to find them.
Of course, in my latest venture, I pay to advertise a free service, and I am not a foolish person. My site offers reviews and advice about products, and I pay money to have people visit that site. Why would I do such a crazy thing? Obviously the answer is that if folks end up buying one of the recommended products, I get a few bucks. To the consumer, the recommendation is free, and they pay no more for the product than if they’d navigated directly to the recommended site. But, of course, it is not free. The site that pays me is now out a few bucks – an expense which they gleefully pass along to the consumer. If they didn’t have to pay me, couldn’t they lower their prices? In fact, if Coca Cola or Pepsi did not have to advertise, couldn’t they lower their prices? But, would you drink a Coke if they were not begging you to do so on every bus, billboard and banner ad you saw? I would, but you might not.
I’ve been thinking a lot about free lately, due in large part to Chris Anderson’s blog The Long Tail. He has pretty much beaten the free horse to death so I won’t rehash, but this morning he featured some pictures from Safeway depicting the word “Free,” and one of them was “Free Parking for Safeway Patrons.” This seems absolutely absurd to me because I had never even considered paying to park anywhere but downtown. I recently became aware of paid grocery store parking when we visited DC, and again, I thought it was ridiculous. The only parking rules we have in the burbs is that you can’t park in the space or two directly in front of the dry cleaners, because they will get angry and yell at you and possibly tow your car. I have not seen a car towed since college, but I know it can happen.
I realize that space is at a premium in some places, and scarcity is the mother of paid parking, but when you are running a business you need customers to survive, and if the only way to get folks in the doors is to offer them a place to tie up their horses, then it is truly imprudent to charge for the rope. Then again, I realize that the grocery store I frequent probably pays a hefty sum every month for the privilege of having a parking lot right out front. This expense is passed to me, the consumer. I wonder if I paid to park, would the food be cheaper? (I would ride my bike to the store if parking were not free, which might save our country from the obesity epidemic, but that is another post all together.)
My point is that free is never ever free.I have been racking my brain trying to come up with some things that are truly free, and apart from a few feel-good examples (a dog’s love, a father’s day card made at school, amateur porn) (all of which have some expense tied to them) I can’t think of a thing – except maybe…
- Free cancer with purchase of cigarettes
- Free dependence on foreign oil with purchase of automobile
Actually, dependence on oil, in general, is probably more accurate, but that did not resonate with our test audience like the evil “foreign oil” buzzword. I don’t care what kind of oil it is – if they put domestic oil in the pumps I probably would not notice. So, really, it’s not my fault that I buy foreign oil, that’s all they give me. (Again, another post.)
Part 2: Clowns, and 401(k)s
But, I didn’t come here today to talk about free. I came to talk about clowns, your 401(k), and how the two are related. If your 401(k) is like mine, it is worth less than it was a year ago. Conventional Wisdom tells us not to worry about that. The market has good years and bad years, but in the end, (the end is always a long time away in these scenarios) we will average 20% a year and be able to retire comfortably. This “wisdom” is based on several decades of historical evidence. This “wisdom” suggests that the buy and hold strategy will consistently beat any strategy wherein you and I (the average investor) tries to time the market. But, chances are that your 401(k) is invested in mutual funds, and chances are that you have no idea which individual companies make up those funds.
In short, you’ve been faithfully handing over your money to a guy that you’ve never met, and he’s been buying and selling shares of companies for you. In the good times, this seemed like a great idea. But guess what, in the bad times, this “professional” has performed no better than you or I would have performed. So, why are we paying fees to the professional so he can lose our money?
If you hired a clown for your kid’s birthday party, and he made all the kids cry, would you hire him again the next month? No, because that would be stupid. What if he lowered his price? What if he offered you a percentage of his clowning business? No, no, and no. He is a crappy clown, so cheap doesn’t make him better, and certainly owning a piece of a crappy clown business is not going to get you any closer to retirement. So, why are you still investing in your 401(k)?
“Now is a great time to buy because stocks are cheap.”
“I am investing in the future.”
Which future? Your future? How does Random Company C figure in to your future? Do you know which companies are receiving your money? Do you believe in those companies and feel that they will grow and prosper and provide you with a nice retirement?
Or, is it safe to say that you believe conventional wisdom – that “the market” will bounce back and have a stellar year real soon, so you keep handing over your money month after month because you have faith in the system? Continue to throw money down the rabbit hole and hope that, eventually, the rabbit will come out and give it all back to you, with interest.
Wouldn’t we be better off if we invested that money in companies that we knew and trusted and believed in, or even invested the money in ourselves? Could you start a business with the money that is in your 401(k) right now? (Could you have done so a year ago?) Could you pay for a college degree, or a once-in-a-lifetime vacation?
I’m not saying to ignore the future. I’m saying don’t trust the conventional wisdom that tells you the safest, most prudent way to ensure a comfortable retirement is to hand over all your investing decisions to a “professional.” The professional investor does not know you or care about you. They are only there to make a buck (your buck, actually.) Think about all the things you gave up for the opportunity to lose a quarter of your money in the stock market. Then think about what that money might be worth today if you’d opened a Starbucks. Yes, it might all be gone. But, how is that different? “The Market” could take it all tomorrow, and instead of saying “I tried and failed,” all you could say was “I trusted the system.”
So, I guess there is one thing you can get for free – bad advice. My wife would like me to mention that I have no business giving financial advice. I am not a licensed professional or anything, just a guy with too many thoughts in his head. By the way, I am still available for free DJ gigs. If you would like more information, send an SASE with $5.00 Shipping and Handling to PO Box 9, Denver, CO 80111.
Special Thanks to Seth Godin for the inspiration for today’s post. My free recommendation (without a kickback) is that you read any or all of his books. They will inspire you too.