Learn / Part 3 · Inside the Financial System
How to Evaluate Any Financial Product
How do you evaluate any financial product?
In brief
Whatever the product, the same five questions apply: time, cost, risk, incentives, alternatives. A repeatable method is more useful than knowledge of any single product.
Key ideas
Five questions
Time, cost, risk, incentives and alternatives work on a loan, a policy, a fund or a pension.
Make an insight card →Put it in writing
Ask for the answers in writing and the documents you can read at home.
Make an insight card →Try it
Compare two loan offers
Offers rarely look alike: one has a lower rate, the other a longer term or smaller fee. Put them side by side on the same amount.
Open the full page: formula, variables, worked example and cautions →
Also relevant: The cost of investing
Red flag
Reluctance to put terms in writing or give you time to read them.
Ask before you sign
- Can I have the full terms and costs in writing today?
- What would I lose by waiting a week?
Do this week
Compare two similar products on the five questions.
Try it · 10–45 minutes
Use the Ask Before You Sign generator on a product you currently hold.
Pause and reflect
Private to this device. Nothing is sent anywhere.
Words worth knowing
- Incentive
- What motivates someone to act, including how a seller, adviser or lender gets paid.
- Fee
- A charge for a service. In finance, fees are often small in percentage terms but large over time.
- Risk
- The possibility that outcomes differ from what you expect, including losing money. Not the same as volatility.
Companion notes written for this website, based on the topics of Chapter 15. They explain ideas and do not reproduce the book. General information, not personal advice.