Opportunity Cost: The Hidden Price of Every Investment — Microeconomics for Investors

§ 01

Opportunity Cost = Return on Best Alternative - Return on Chosen Option

§ 02

Holding cash feels safe, but it has an opportunity cost. If the market returns 10% and your cash earns 4%, you lost 6% in opportunity cost, on top of inflation eroding the cash.

§ 03

Compare your **portfolio return** to the SPY benchmark in the Portfolio Analytics view. The gap is your opportunity cost (or gain).

§ 04

Every investment decision is a choice between alternatives. The question is never just 'will this make money?' but 'will this make MORE money than what I am giving up?'

§ 05

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?

Five questions · AI feedback

Sit with the ideas.

You put $50,000 in a savings account earning 4% per year. The stock market returned 11% that year. What was your opportunity cost?

Why:

Sit with the ideas.

Other lessons in this course.