Opportunity cost: The value of what you have to give up in order to get what you want
- February 23, 2022
- Brian Jenkins, economics, Business Insider, Feb. 23, 2022
Why opportunity cost matters for investors: Opportunity costs matter to investors because they are constantly selecting the best option among investments. "Whenever an investor buys assets, they implicitly choose not to buy others," says Brian Jenkins, an associate professor of economics at the University of California, Irvine. Jenkins, expands with an example: "From 2002 to 2021 the S&P 500 produced an average annual return of about 11%. Suppose that over that time, an investor managing her own portfolio was able to produce an annual return of 8%. By choosing to manage her own portfolio instead of holding a low-cost index fund that tracks the S&P 500, the investor gave up about 3% per year for 20 years (and probably took on more risk too), a substantial implicit opportunity cost."
For the full story, please visit https://www.businessinsider.com/personal-finance/opportunity-cost.