In this article, I’ll explain what is the opportunity cost of not investing.
The opportunity cost is the cost of doing something over something else. For example, you have 2 choices, you can either continue working full-time or go to graduate school.
If you plan to go to graduate school, the opportunity cost is your annual salary that you’ll lose because instead of working you’ll be in school.
OPPORTUNITY COST OF NOT INVESTING
You have two choices, to invest your money or to not do anything.
To figure out the cost of not investing, we have to predict how much money we would make if we actually invested our money.
Let’s assume we have $10,000 and we want to buy our first house in 10 years
Historically, the stock market has an annual rate of return of about 7% after inflation over the long-term. This means every year, if you invest your $10,000 in the stock market, you’ll receive an average rate of return of 7% or $700.
Some years you might get -2%, other years you might get 9%, but on average the stock market return has historically been 7%.
So the opportunity cost of not investing over 10 years is $8,385.
Let me ask you, what would you be able to do with an extra $8,385? Go on vacation? Put it as a downpayment to buy your first house?? Retire 3 years earlier?
The cost of not investing $10,000 is high, but imagine if had $20,000 or $30,000? What would be the opportunity cost of not investing then? D:
I hope this article shows you the importance of investing and inspires you to get your butt off the couch! 😀
If you want improve your financial literacy so that you can learn how to invest shoot me a DM on facebook or book a call with me here.