What Is Opportunity Loss?

Opportunity loss is a loss that occurs when you fail to (or unable to) grab an opportunity at the right time and later the value of that thing increased. This term “Opportunity Loss” is mostly used in financial field, but it is famous for many other fields too.

Let’s consider an example of a Mutual Fund and a Systematic Investment Plan (SIP) where you are making regular payments to achieve your investment goals.

Assume in a month you were missed or unable to make the payment due to any issue, and that time markets were too much down. So, you missed the opportunity to make the payment and buy more units of mutual fund in the same amount. But keep in mind that there are many opportunities in the market, and you should not take stress for this.

Here, the month in which you missed making such payment was the opportunity loss, if just a month later the market boomed. You may have earned little more if not missed the opportunity, and that is why we term it as opportunity loss.

Let’s take another example, you have a well diversified portfolio with equally allocation to all sectors. You yourself manage the portfolio and rebalance timely. Suppose, you know that healthcare sector may not perform well but real estate will, so it is smart choice to rebalance the theme from healthcare to real estate to gain the opportunity.

But if you fail to do so, and the rally ended very well, then you miss an opportunity here. This is again an opportunity loss, where you could have earned more returns.

Once you invest in the scheme like Mutual Funds, SIP in MF, ULIP, etc. this is the most common term which we see and use.

If you’ve been grabbing the opportunities regularly there is no opportunity loss, and if the market grows you’ll have all the opportunity gain (another term, opposite of loss).

So, make sure you never miss any opportunity to avoid any opportunity loss.