Investing Basics

What Is Opportunity Cost?

Opportunity cost is the value of the next-best alternative given up when making a choice. Because money, time, and resources are limited, choosing one option means not receiving the benefits of another. It is a central idea in economics and in comparing financial decisions.

Example

Money used for a larger down payment is no longer available to earn interest elsewhere; the interest it could have earned is part of the opportunity cost, which rent-vs-buy comparisons include.

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🔗 Related Terms

Time Value of Money Sunk Cost Return on Investment (ROI) Price-to-Rent Ratio

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Last updated: September 27, 2026. This definition is for general educational purposes only. It is not financial, investment, tax, legal, or medical advice, and it does not recommend any product or course of action. For decisions about your own situation, consult a qualified professional.