Investing term

What is Opportunity cost?

The value of what you give up when you choose one option over another.

Opportunity cost is the value of the best alternative you give up when you make a choice. In investing, every dollar in one asset is a dollar not in another — so holding cash that earns little has a real cost if stocks are compounding elsewhere. Thinking in opportunity-cost terms keeps you honest about whether a holding is truly your best available option.

For example

Leaving $10,000 in a 0% account while markets return 7% carries a $700-a-year opportunity cost — the gain you quietly forfeited.

Opportunity cost is taught hands-on in Stage 1 — Money, Goals & Your Financial Foundation.

See the lesson →

Related terms

APRAnnual Percentage Rate. The yearly interest cost of a loan, including most fees.CompoundingWhen your returns earn returns of their own, so money grows faster the longer it's invested.Emergency fundCash reserved for unexpected expenses, usually 3–6 months of your usual spending.Employer matchFree money from an employer that matches part of what you contribute to a workplace retirement plan.
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