by Stacy Francis, CFP®, CDFA
Strolling through Tribeca, New York this weekend, I stumbled upon a gorgeous cashmere sweater at a designer sample sale. It fit me perfectly; the only problem was that it was a still little on the expensive side, and I loved it in black and in grey. Torn, I spent a good half hour going back and forth between the two, before eventually settling on the grey one. This really got me thinking about opportunity cost, and how this is present every moment of our lives, always.
Whether shopping for the perfect house, car, or sweater, when you choose one, unless your budget has no limits, you have to un-choose the others. When you buy yourself a Mini Cooper, you give up having, say, a Lexus or a Honda – even one of those yummy Porsche Boxters. Whenever you open one door, you also choose not to open the others.
In finance, the concept opportunity cost becomes even more urgent. Whenever you choose to bet your money on one fund, you choose not to buy others. What if they take off, and yours doesn’t?
And in everyday decisions, like whether to go on a vacation or renovate the kitchen, there will always be things that you do not choose. Always be clear over what your goals and priorities are, and use these as a guide when faced with tough, high-opportunity-cost decisions.
