FP Article 15.10
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Investment Risk -
Lost Opportunity Risk
by Rajen Devadason
The great secret of success in life is for a man
to be ready when his opportunity comes.
Benjamin Disraeli
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Lost
opportunity risk boils down to us
not being able to do B, let's say,
because we've over-committed our
resources to doing A.
For example, each
time we are paid our salary, we are
faced with the option of either
spending or saving that money.
If we choose
consumption, then that money is lost
forever and cannot be saved or
invested.
Let me be more
specific: |
If we decide the bulk of any month's salary
should be spent to buy some pretty gadget or
gizmo, well then as far as we're concerned, that
money's been used up! Whereas, if we choose to
invest it wisely, then over time that money is
likely to grow; eventually it will grant us many
more opportunities, later on, to spend so very
much more!
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This is an article explaining
lost opportunity risk. I hope you enjoy
reading it. But if it isn't what
you're looking for, you're welcome
to search for something that better meets
your needs. Thank you for allowing
me to serve you.
Rajen Devadason |
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You should, however, bear one
thing in mind: Even when it comes to the acts of
saving and investing, there is a possibility of
a more subtle form of lost opportunity risk.
For instance, if you were to
invest in a condominium at the top of the
property cycle - meaning you end up paying way
too much for it - you might then find it very
difficult to rent it out for a ‘decent’ sum.
If that were to happen, you would
have sunk a significant portion of your precious
net worth or expended a large proportion of your
capacity to borrow into real estate that earns a
meagre return. That's depressing enough. Sadly,
it isn't the worst of it!
You might subsequently find you
no longer possess sizeable cash reserves to take
quick advantage of a great stock purchase
opportunity that might present itself to you.
It might be a wonderful company
that is very suddenly – and only momentarily –
selling at bargain basement prices because of a
short-term market correction or specific episode
of mispricing.
In such circumstances, it is easy
to understand how an opportunity has been lost.
This form of investment risk is always present
each time we're faced with any spending or
investing opportunity!
The only way to fully avoid lost
opportunity risk is to nurture a high savings
rate into very liquid instruments and to never
commit too much of your liquid store of cash to
any single investment.
Here's the one lesson you
should walk away with from this article:
Always aim to invest as wisely as
you know how and never commit all your cash
reserves to any one venture.
If you'd like to continue to learn more about
other types of investment risk, here's
additional information for you...
15 Types of Investment Risk
(OR, to sign up for a
FREE
16-lesson eCourse on Investment Risk, please
click here.)
1.
Borrowing Risk
2.
Company Risk
3.
Credit Risk
4.
Currency Risk
5.
Diversification Risk
6.
Industry Risk
7.
Inflation Risk
8.
Interest Rate Risk
9.
Liquidity Risk
10. Lost Opportunity Risk
11.
Manager's Risk
12.
Market Risk
13.
Market Timing Risk
14.
Political Risk
15.
Prepayment Risk
© Rajen Devadason
