- Maintaining moderate cash balances or owning securities that periodically throw off appreciable cash is likely to reduce the number of foregone opportunities.
- Equity investments in ongoing businesses typically throw off only minimal cash through payment of dividends.
- The securities of companies in bankruptcy and liquidation, by contrast, can return considerable liquidity to a portfolio within a few years of purchase.
- Risk-arbitrage investments typically have very short lives, usually turning back into cash, liquid securities, or both in a matter of weeks or months.
Another way to limit opportunity cost is through hedging.
- A hedge is an investment that is expected to move in a direction opposite that of another holding so as to cushion any price decline.
- If the hedge becomes valuable, it can be sold, providing funds to take advantage of newly created opportunities .