Opportunity Cost – A potential loss to consider and calculate!
For investors, opportunity cost refers to the potential returns they forego when they commit capital to one investment over another. Consider an investor who must choose between a low-risk government bond and a high-risk equity option. By opting for the bond, security over the possibility of higher returns becomes the choice. Sometimes this is quantifiable only in hindsight. Other times, however, the wise investor can and should consider opportunity cost prior to purchase. Practice due diligence. Understand expense ratios, cost of advice, the dollar cost of the assets under management model, and compare to similar options such as index funds; then calculate the cost. The calculation may startle you. Any choices must follow your overall asset allocation plan. When seeking financial advice, add up EVERYTHING you’re paying for through your advisor vs. making your own (few) trades and making your own decisions. Keeping it simple is one example of how to keep more money in your pocket and it simplifies calculating opportunity cost.
RISK VS. REWARD
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