Opportunity Cost is a calculation of gain forgone when funds are used for alternate purposes. For example, the “opportunity cost” of attending business school is not only the expense of tuition, but also the salary not earned during that two-year period.
Later, when we talk about conducting a “Portfolio MRI” to evaluate how well your own investments meet the 5 key rules to successful investing, we will talk about comparing the performance of your investments to appropriate benchmarks to see if you’ve made as much money as you could have made. One simple reason that people are not seeing the returns they ought to see is that they are invested in “retail funds” rather than comparable institutional funds. If you are in a retail fund, it is likely you are missing out on some of the gains that can be realized with institutional funds, which would reduce your costs. That alone would increase your expected return without changing your risk.