{"id":12472,"date":"2018-06-08T09:02:17","date_gmt":"2018-06-08T16:02:17","guid":{"rendered":"http:\/\/www.marketriders.com\/investing\/?p=12472"},"modified":"2018-06-08T09:02:17","modified_gmt":"2018-06-08T16:02:17","slug":"investor-facts-opportunity-cost","status":"publish","type":"post","link":"https:\/\/www.marketriders.com\/investing\/investor-facts-opportunity-cost\/","title":{"rendered":"Investor Facts: What Is Opportunity Cost?"},"content":{"rendered":"

Opportunity cost is the potential extra\u00a0return from one\u00a0investment compared to another, different investment<\/a>.<\/p>\n

In business, managers must choose how to deploy capital\u00a0in order to make a profit.<\/p>\n

Sometimes, they are presented with two or more alternative paths. Not every venture can be sustained, so opportunity cost represents the profit-making potential of the path not taken.<\/p>\n

For instance, say you\u2019re putting together a marketing plan to sell a product and you have two choices.<\/p>\n

\"\"<\/p>\n

One is to buy advertising where you\u2019d get a couple billboards, a few commercials on TV and several radio spots over the course of one week.<\/p>\n

The other choice is to attend a trade show where you can sell your product. The show costs the same to attend as the advertising buy, but it is\u00a0just\u00a0one day long.<\/p>\n

You choose to spend the money on advertising and sell\u00a050 products as a result of customers calling in blindly.<\/p>\n

Meanwhile, a competitor selling the same product goes\u00a0to the trade show you skipped and lands a deal with a major retailer. That retailer puts in an order to purchase 20,000 units of the product to sell in stores.<\/p>\n

The opportunity cost is the lost revenue or sales that you would\u2019ve received if you had chosen the trade show\u00a0option. You sold 50 products, but you could have sold 20,000. The 19,950 difference is your opportunity cost.<\/p>\n

Investing choices<\/h2>\n

In investing, we make intentional choices all the time among a variety of possible investments.<\/p>\n

If two investments represent the same risk and the same rate of return<\/a>, it can be hard to distinguish between them.<\/p>\n

Over time, however, it might become clear that one of them\u00a0is superior to the other, offering a better return for the same risk \u2014 or the same return with less risk.<\/p>\n

Staying in the less attractive investment creates a clear opportunity cost. That might strongly indicate that\u00a0a change of investments would be smart to consider.<\/p>\n

MarketRiders, Inc. is a registered investment adviser.\u00a0 Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.\u00a0 Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and\/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.<\/i><\/small><\/p>\n","protected":false},"excerpt":{"rendered":"

Opportunity cost is the potential extra\u00a0return from one\u00a0investment compared to another, different investment. In business, managers must choose how to deploy capital\u00a0in order to make a profit. 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