The Holy Grail of Finance: solving opportunity cost dilemma.
In modern finance education, a very important principle I was taught was opportunity cost; which stated simply means if you use your money to buy something, you cannot use that money to buy something else, it has been spent.
This means for example, if you save money in an interest bearing savings account, your savings grows inside the account year after year. If you pull that savings out of the account to buy a car, it no longer grows in your savings account. Instead you used it to buy a car. There is an opportunity cost in buying the car. The opportunity cost is that your money is no longer earning interest and growing in the bank. The opportunity to earn interest was lost when you bought the car. That is called the opportunity cost of buying the car.
A simpler illustration of this principle is ordering food in a restaurant. If your parent takes you to a restaurant, where they serve both fish and steak, but you can only order one, either fish or steak, if you choose fish, you lost the opportunity to order steak. If you order steak, you lost the opportunity to order fish. Thus the opportunity cost of ordering steak is that you don’t get to order fish.
This principle or rule or law, which ever appeals to you, leads investors in search of the Holy Grail of investing, an investment with no opportunity cost, that allows you to save and buy at the same time, to order both steak and fish.
I found it, it’s whole life insurance. You see with whole life insurance you can save your money inside the cash value of your life insurance policy and borrow against it for a loan, which you could use to buy things or invest in something. You can use your money for two things! Viola the holy grail of finance.
✍🏼 written by Shortsegments.
“The hustle never sleeps.”
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