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Opportunity Cost

Opportunity cost is what you give up by choosing one option instead of another.

Why this matters

Every investing decision has trade-offs, including the choice to stay in cash.

Simple example

Keeping $10,000 in cash might feel safe, but you may miss years of compounding in the market.

Common mistakes

  • Comparing choices only by risk and not by missed potential return.
  • Ignoring inflation when leaving money idle.
  • Treating inaction as a neutral choice.

Related terms

Frequently Asked Questions

What does Opportunity Cost mean?

Opportunity cost is what you give up by choosing one option instead of another.

Why does Opportunity Cost matter?

Every investing decision has trade-offs, including the choice to stay in cash.

What is a simple example of Opportunity Cost?

Keeping $10,000 in cash might feel safe, but you may miss years of compounding in the market.

What is a common mistake with Opportunity Cost?

Common mistakes include: Comparing choices only by risk and not by missed potential return. Ignoring inflation when leaving money idle. Treating inaction as a neutral choice.