Suppose you are a freshmen in college and you have not declared a major. One reason you enrolled at your respective college was the school's vibrant social life. At the same time, you want to balance your academic life because you know that your grades will matter for graduate school or job applications. You decide to forgo partying for two hours to study for an upcoming economics exam. In your first semester's Principles of Economics class, you learn that the enjoyment you would have received from partying is an example of a (n)

opportunity cost

Explanation:

Opportunity cost is the value of what you forgo when making a decision. In the case of the above question, the boy renounced the fun he would have at the party when he decided to stay home studying for his next exam.

When it comes to investing, opportunity cost is directly linked to the advantages and disadvantages of each application and how they fit your investor profile and life goals. You need to assess all the risks involved, the potential for appreciation and how this will all reflect on your future earnings.

Always weigh the pros and cons of applying your money in a more or less liquid, safe and profitable security.

When calculating opportunity costs you must consider missed opportunities. But it is paramount that you understand how a decision will influence all areas involved.

Procrastinator