What are opportunity costs in investing?

What are opportunity costs in investing?

Opportunity costs in investing refer to the potential gains you miss out on when choosing one investment over another.

Can you give me an example of opportunity cost?

Sure! If you invest $1,000 in Stock A instead of Stock B, and Stock B rises 10% while Stock A only rises 5%, your opportunity cost is the 5% you could have earned from Stock B.

How do I calculate opportunity costs?

To calculate opportunity costs, subtract the return of the chosen investment from the return of the next best alternative investment.

Why is understanding opportunity costs important?

Understanding opportunity costs helps investors make informed decisions by evaluating the potential benefits of different investment options.