The return you gave up, and the net gap
Opportunity Cost = Return on Best Alternative Forgone; Net Shortfall = Opportunity Cost - Return on Chosen Option
The hidden cost of holding cash instead of investing
Holding cash feels safe, but it carries an opportunity cost. If the market returns 10% and your cash earns 4%, the opportunity cost of the choice is the full 10% you passed up — a 6-percentage-point net shortfall versus what you actually earned, on top of inflation eroding the cash.
Comparing your return to a benchmark to see the gap
Compare your portfolio return to the SPY benchmark in the Portfolio Analytics view. The gap between them is your net shortfall (or excess) versus that alternative.
Why the real question is whether a choice beats the alternative
Measuring opportunity cost across two whole investments
An investor sells a rental property to put $500K into stocks. The rental was generating $40K/year net cash flow. The investor is now earning 3% cash yield ($15K/yr) on the stock portfolio. What's the opportunity cost?
Check your understanding
Sit with the ideas.
You put $50,000 in a savings account earning 4% per year. The stock market returned 11% that year. Net of what your savings earned, what did choosing savings over stocks cost you?
Why: