Glossary
Opportunity Cost
Opportunity cost is the value of the best alternative given up when a choice is made — what the money or time could have earned elsewhere.
Cash held in a zero-interest account has an opportunity cost equal to what a money market fund or invested portfolio would have paid. An expensive fund's opportunity cost is the cheaper equivalent's return. The cost is real but invisible: it never appears on any statement.
Why it matters in practice
Most long-term financial damage is opportunity cost rather than loss — decades of uninvested savings, unclaimed 401(k) matches, or high fees quietly compounding. Framing decisions as comparisons ("this, instead of what?") surfaces it: a $10,000 purchase at age 30 is also a choice not to hold what that sum could become by 65. The concept argues for defaults that keep money working automatically.
Related terms: Compound Interest · Expense Ratio · Money Market Fund · Liquidity