The High Cost of Missed Opportunities

The High Cost of Missed Opportunities

by Thomas L. Hardin, CMT, CFP

Financial professionals use the term "opportunity risk" to describe what happens when you don't invest or use money in the most profitable way. For example, you could put your money in a money market account at less than 1% interest, but you might be missing an opportunity to invest it elsewhere at a higher rate of return.

There's another type of opportunity risk that's usually overlooked: the cost of failing to use or invest your money in ways that enrich the quality of your life. Yes, you need to save and invest for the years ahead, but investing money in yourself can pay big dividends now and in the future.

Not long ago, I met Hall of Famer Reggie Jackson. He and several of his friends were thinking about buying a corporate jet to use, lease, and make available to others. They figured it would be a pretty good investment. More important, Reggie said it would save him about 1,000 hours per year. Instead of wasting all the time it takes to fly these days, he'd reclaim that time and improve his quality of life.

As you start making plans for the new year, what could you "invest" in that would add to your life? A digital photography class? Computer training? Golf lessons? Yes, there's an expense associated to all these things, but I look at them as an opportunity risk of money. For me, spending quality time with my family and friends, visiting new places, and learning new skills offer far more value to my life than hoarding and saving could ever bring.

Many members of the rock and roll generation (born between 1937 and 1959) are reluctant to invest money this way. They learned from their depression-era parents that something could happen to take away everything they've worked so hard to gain. Fear of the future leads to hoarding, not to rational saving. It causes win-lose thinking as opposed to win-win thinking; scarcity thinking as opposed to abundance thinking.

In his book, Good to Great, author Jim Collins introduced a concept he called "the genius of AND." He suggests that we "embrace both extremes on a number of dimensions at the same time. Instead of choosing A OR B, figure out how to have A AND B - purpose AND profit, continuity AND change, freedom AND responsibility."

When it comes to money management, it's pretty easy to get caught up in the means and forget about the end. Many people get wrapped up in the idea that they need to save, invest, and build their money, while forgetting money's real purpose. It was never intended to be hoarded; it's meant to be used. With proper coaching and good money management, you can do both.