Risk refers to the likelihood of you losing money due to some business or investment related factor.
Cost refers to the amount of money that you need to fund your investment or business. However, it also includes the amount of time and effort that goes into actively building or sustaining a strategy.

What does an ideal wealth creation strategy look like?

Strategies are weighed up in terms of risk and return. High risk means you have little control over your business.
High risk essentially means that it is unpredictable, which makes your business or investment highly susceptible to factors outside of your control. The lower the risk the more predictable and stable your income stream becomes.
A high return business is one that produces sufficient and consistent passive income over the long term. More importantly, the return is able to fund your desired lifestyle.
A low return business simply means that you have an asset that does not generate sufficient income. Income or growth may also be inconsistent.
With this type of strategy, you are unable to support your desired lifestyle. Most people select this approach because they are familiar with it, it is simple to implement and results come quickly.
Wealth creators are specifically after high returns and low risks. They want to be rewarded for their efforts over and above their costs, they hate losing money and they want a business that is sustainable.

There are three things you can do to lower the risks/costs:

  1. Increase your financial or business literacy
    When it comes to developing your business, you need to know how to put together a business plan, how to select profitable markets and how to acquire finance.
    If you want to invest in the stock market, you need to know what techniques you can use to lower your risks, analyse market trends and select shares.
    There is a lot more to building wealth than simply using pension funds or retirement annuities.
    Financial literacy puts more control in your hands, which enables you to make better business decisions. You essentially have the power to raise your return or profits and lower the risks/costs.
  2. Leverage passive income businesses
    By using business systems which involve other people and technology you can free up a lot of time and energy as well as lower the costs. Not only that, you generate a passive income in the process.
    A property portfolio can be managed by other people completely. This gives you more time to do other things.
    An online business on the other hand is run entirely using technology. The internet is one way to cut out the need to hire employees, which lowers your costs drastically and raises your profit margins.
    Compare using systems to working for a boss or yourself. If you don't work, you don't get paid. If you don't get up early and work a full day, you probably won't get paid. If your income stops, your livelihood stops.
  3. Focus on consumer needs, not business cycles
    Effective wealth creation is based on meeting consumer needs and not on trying to predict business cycles.
    Property investing is a business because people require shelter. It's a basic human need. You supply the property and other people pay you for using it.
    Information is a business because people will always need good, reliable, practical and timely information to make their lives easier. And the internet is a great way to deliver valuable information which has been correctly packaged.
    Financial products like pension funds and retirement annuities try and profit from market cycles. When the economy does well, your returns tend to be higher and vice versa.
    As a whole, market cycles are exceptionally difficult to predict. This is one of the reasons why modern day investing is a high risk, low return strategy.
    Consumer needs on the other hand are a lot easier to identify, track and cater for, which is why a passive income business is a low risk high return strategy.