Trading and Investing is now a commodity. Robinhood, Wealth Simple, and Scotia iTrade understand the power and value of building a user base before capitalizing on the user itself. Since Robinhood’s start back in 2013 they have amassed over 4 million customers with no intention of making any money. Recently they dropped a new customer acquisition product: The 3% interest savings account. Which was quickly retracted, and they were fined $250,000. But they don’t care. They’re all about cheap customer acquisition. They’re absolutely killing it. However, not to be outdone, the banks are following suit creating free trading accounts… And why not? Equity trades have basically been free for retail investors for a decade. What’s changed is that now they’re a worthless commodity, a loss leader for banks like the Hotdog and rotisserie chicken is for Costco. The new bank and Fintech business model: “Come for the free trades, all the while we will get you to trade options, use margin or as we maintain custody on your account, we’ll lend your shares to the short-sellers. In JPMorgan’s case, here are a hundred free stock trades, and here’s a credit card offer every two weeks while we lend out your cash 15-1 to borrowers. Thanks for playing.” Last summer one of my wife’s coworkers who is a FIRE physician asked me if I was worried about Robo-Advisors, the cheap ETF indexing options and freemium investing services available. It was clear that she thought the industry was dead, as many investors who do not have good advisory team in their corner believe. Here’s why GIM doesn’t care about their free trades and free index funds. We aren’t even a little scared: The Investor data that gets compiled every year suggests that individual investors (people) are on their worst behavior at the worst moments when it comes to investing. This cycle is inexorable. It is why markets function the way that they do. If markets and market participants were rational, there wouldn’t be massive sell offs and run ups. People must lose and people have to win. It’s a mathematical fact. If we all behaved rationally we wouldn’t see massive sell-offs and rallies. Example: Apple added $286 billion in market capitalization over 73 trading sessions (1/3/2019 – 4/18/2019) That’s $10 million every minute. There are only 11 companies in the United States with a higher valuation than what Apple managed to tack on to their market cap in a 73-day period. Recap: The biggest stock in the world gained 43% in under four months, and nothing materially changed. How does something like this happen in a world where people are behaviorally rational? Investors must lose and the masses have to lose massively at major turning points. And they do – every time. The dollar-weighted returns of even the best performing funds prove this every year. The freeness of a portfolio thus becomes irrelevant, a triviality in the shadow of our colossal inability to act professionally. Of what consequence are 75 basis points when we can barely maintain an awareness of our elemental cognitive deficiencies? “oh no, I won’t sell at the bottom or buy at the top this time. I know better.” Yes, you will. You can’t help yourself. When people obsess about the costs of a fund or of an investing strategy, I must bite my tongue. Absent the context of an investment plan, it’s a meaningless conversation. The true cost – that of an aimless, lawless course of investing, replete with emotional leniency and non-descript, objectives – is probably going to bury the freemium self-directed investor anyway. “Everyone’s rational, calm and self-directed until the economy blows up and punches them in the face.” – Mike Tyson probably (JK) As Nick Murray writes in Simple Wealth, Inevitable Wealth: “A portfolio is not, in and of itself, a plan. And a portfolio that isn’t in service to a plan is just a form of speculation; it can have no other goal than to beat most other people’s portfolios. But “outperformance” isn’t a financial goal. An income you don’t outlive – to cite one critical example – is a financial goal. If your portfolio “outperforms” mine, such that I run out of money when I’m 76, and you don’t run out of money until you’re 82, it isn’t going to matter much when we’re both 85, sitting on a park bench without two nickels to rub together between us.” A true financial plan involves a Swiss Army knife portfolio calibrated to deliver what your unique plan calls for over your family’s lifetime. The financial plan involves calculations and assumptions. A proper financial plan utilizes statistical facts and educated guesswork. It creates scenarios and populates them with probabilities. It involves decision making with trusted advisors on: taxes inheritance cash flow debts philanthropy insurance living care A plan, no matter how you price it is not a product, it’s an ongoing service. It’s alive. It doesn’t just exist on paper. It requires revision as your life changes. What a plan should do is demand rational, deliberate behavior on the part of the investor and his or her trusted advisory team. Focusing on the performance or cost of a portfolio absent a plan is putting the cart before the horse. While having a fast and cost-effective cart is incredibly important, don’t focus on one without having the other. Making poor decisions – even if at a low cost or even no cost – won’t do you any good. Everything in the investment business is free now. But nothing that comes free has any value. Don’t get me wrong, I’m clearly very biased but a well executed and strictly adhered to financial plan is imperative. And that isn’t free. If you’re interested in building a financial plan and working with a team that is focused on your financial heath, don’t hesitate to reach out.