Episode 212: Your 60/40 Investment Portfolio Is Not Actually 60/40. A Canadian Business Owner Case Study

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Are you an incorporated professional sitting on hundreds of thousands in your corporate account—but too nervous to invest it?

Many business owners find themselves in this exact bind. You’ve built a thriving practice, cash is piling up, but fear of illiquidity, taxes, or a market downturn keeps that money sitting idle. Meanwhile, inflation erodes its value and passive income taxes take half your gains. This episode dives into the real-life case of “Mark,” a medical professional from Calgary with over $700,000 in retained earnings, and unpacks how he can move from analysis paralysis to strategic growth. We explore why fear-based “safety” can actually be costly, how to structure your retained earnings for flexibility, and how to align your investments with both logic and emotion.

In this episode, you’ll discover:

• How to balance liquidity with long-term growth inside your corporation without triggering punitive tax hits.

• Why your retained earnings portfolio might be more conservative than you think—and how to fix it.

• The strategy top professionals use to turn idle corporate cash into a tax-efficient, growth-producing reservoir.

If you’re ready to stop letting your retained earnings stagnate and start building lasting corporate wealth, press play now and learn how to make your money work as hard as you do.

Resources:

• Ready to take a deep dive and learn how to generate personal tax free cash flow from your corporation? Enroll in our FREE masterclass here. 
• Book a Discovery Call with Kyle to review your corporate (or personal) wealth strategy to help you overcome your current struggle and take the next step in your Canadian Wealth Building Journey!
• Discover which phase of wealth creation you are in. Take our quick assessment and you’ll receive a custom wealth-building pathway that matches your phase and learn our CRA compliant tax optimized strategies. Take that assessment here.
• Dig into our Ultimate Investment Book List
• Follow/Connect with us on social media for daily posts and conversations about business, finance, and investment on LinkedIn, Instagram, Facebook [Kyle’s Profile, Our Business Page], TikTok and TwitterX.  

Calling All Canadian Incorporated Business Owners & Investors:

Consider reaching out to Kyle if you’ve been…

• …taking a salary with a goal of stuffing RRSPs;
• …investing inside your corporation without a passive income tax minimization strategy;
• …letting a large sum of liquid assets sit in low interest earning savings accounts;
• …investing corporate dollars into GICs, dividend stocks/funds, or other investments attracting cordporate passive income taxes at greater than 50%; or,
• …wondering whether your current corporate wealth management strategy is optimal for your specific situation.

Financial freedom in Canada takes more than income — it takes strategy. Whether you’re a seasoned entrepreneur, high-earning professional, or building wealth through real estate, mastering the four phases of a healthy financial plan is non-negotiable. This podcast unpacks the smartest Canadian tax strategies, corporate structuring moves, and investment tactics that create lasting wealth. From optimizing RRSP room and leveraging real estate to balancing salary vs dividends and planning your legacy, we focus on actionable insights tailored for business owners and investors. Each episode gives you the tools to align your personal financial buckets with your business goals and use a proven Canadian wealth blueprint to future-proof your finances. Follow Frederick, a disciplined 49-year-old professional in Toronto, as he earns near-perfect marks on his Canadian financial health assessment — and uncovers where even top planners need to improve. Learn how modest living, real estate investing, and precision financial vision-setting can accelerate your path to early retirement and long-term security.

Transcript:

Kyle Pearce: Imagine you’ve spent years building your practice, you finally have some real cash flow in your corporation, hundreds of thousands are sitting in your corporate account, but you’re afraid to invest it because you don’t want to lose it or you don’t want to lose the liquidity and your accountant keeps reminding you that there are passive income taxes, which are taking half of any of that interest that you’re using or earning inside your corporate account.

Kyle Pearce: Today, we’re gonna be digging into a real client story, a medical professional from Calgary who found himself sitting on over $700,000 of retained earnings that he didn’t know what to do with. So we’re gonna dig in here, we’re gonna chat about some of the things you could do. We’ll talk about the rational things you could do, like for example, take it all and invest it in the longterm and everything will be fine. But the reality is we’re also gonna address the behavioral piece, which is emotional, the parts that hold us back from doing things we know are good over the long term due to short and medium term fears of illiquidity, cashflow crunches, or maybe just having a business slowdown. So John, this inspired me, this conversation with this individual. First of all, they’re doing great things. They’re not spending a whole lot. We’re gonna call him Mark, and Mark today is gonna be from Calgary, so. Two things that we are changing and for those, it’s funny when we hop on a call, people say, are you going to talk about me on the podcast? And I always like to reassure that we always change. yeah, we’re going to talk about you. I promise we’re going to talk about you, but we change names. We change locations. We even change professions so that it is very almost impossible to identify. But today we’re going to dig into this one. So for Mark, you know, first thing I want to say like on this call, they’re doing the right things. They’re not overspending, they’re paying themselves an appropriate amount, they’re not overpaying themselves and paying more tax than they need to. They’re not underpaying themselves and leaving too much of those low tax bracket years on the table. That’s sometimes what we find when we’re working with incorporated business owners. But there’s a challenge here because those retained earnings, they know they don’t wanna pull them out, but when they sit in there and they only sit doing a whole lot of nothing, that’s obviously not a good move. It’s almost like analysis paralysis takes over, right? And the longer we sit, the longer we wait, the less those dollars are worth. So today we’re gonna talk a little bit about what we could do, some of the options, and then what we see many of the business owner clients were doing, sort of working towards and shifting towards so that they can kind of get the best of all worlds.

Jon Orr: Right. Yeah. Yeah, yeah. And this being a Friday secret sauce episode, we will end it with his health assessment, know, on his, not his health assessment, his financial health assessment on the four stages and we’ll give him a grade. So stick around to see, you know, and hear about specifically that assessment and where you can also learn about your assessment. But, you know, you mentioned that this is a common a common kind of pebble that I think, and I think business owners might not see it as a pebble because you said that he’s holding a significant portion of his retained earnings in say cash on the sidelines. And if you look at our assessment, if you look at the four stages of what we would say is a healthy assessment, the second component is about a wealth reservoir. so we’ve used the term emergency fund, we’ve used the term like, this is your opportunity fund. So immediately you might, if you just heard those terms, you might be like, well, I should put some money on the sidelines. I should have cash sitting over in those sidelines because that’s my emergency fund. That’s my investment fund. This is my, when the market dips, this is where I pull from. And you know, this is my, my, you know, the wedge when I need a wedge. So it makes sense, to have that corporate fun. And while we would agree, that that’s an important component, the structure, the container that that fund is sitting in could be optimized a little, especially in Mark’s case here. And I think what we’re gonna unpack specifically when we start to get into the numbers for Mark and his scenario is give him some recommendations that could actually keep that liquidity there, but also set them up for some success to help with the other stages of his financial health.

Kyle Pearce: Yeah, yeah, absolutely. And just to kind of frame things a little bit, they’ve only been incorporated for a couple of years. So in that startup phase, really the hope is you’re like, hope that I have money left over after expenses, after paying myself, and all of those nuances, which is happening here, which is great. But at the same time, there’s also this hesitation in the early years when they set up a business to go like, can I repeat this? Is this going to happen every single time? Yeah, I’ve got to I’ve got to have this like safety net going on. And then comes the where should I be doing some of these things? So the first thing we discussed with Mark was really about saying, Listen, you know, with those retained earnings and each year, so this past year, he had had grown about $600,000 of retained earnings. So he’s really starting to see the retained earnings grow. And I said, you know, let’s use 500,000 as an example here. Okay, if we use 500,000, and we if we think that 500,000 is reasonable. And for a lot of people, they want to grow that over time. But let’s say it’s 500,000 from year to year. We definitely want to make sure that a good chunk of that is being invested. Now, some people would say, well, know, Kyle and John aren’t huge fans of say, our RRS peas in this case, you know, the more retained earnings you have, the more open I am to taking a little extra to yourself via T four. in order to fund your RRSP just from a bucket diversification play, right? So we’re not saying that, you we love the fact that, you know, we’re going and taking some dollars from the low security prison we call the corporation and putting it into the high security prison, which is the RRSP. The part I do like is knowing that I have some assets on both sides of that corporate border. So in his case, because he has a significant amount of retained earnings, I would totally be open to, hey, listen, take 10, 20, even up to maybe $30,000. Right now, he’s not taking a huge salary as it is, so I wouldn’t get too carried away with the RRSP because he doesn’t need to put himself into a high tax bracket currently. So I would say, you know what, take about the 135, he’s taking a little less. Take the 135, you’re gonna net out about even on a portion. of the corporate income tax because he is earning technically over $500,000 in the corp and fire it into your RSP. Like that’s a great first start. Set it and forget it. I say set it and forget it. Like put it into those long-term ETFs. I would focus mostly on equities for those types of investments because we’re gonna hit the fixed income portion utilizing some of our other strategies and tools. However, I wouldn’t stop there. I would also consider potentially utilizing the tax-free savings account. Again, you take an extra $7,000 out a year, you’re going to pay a little extra tax, but it’s only $7,000 compared to $500 or more thousand dollars inside the corporation. So again, more diversification, more investments happening. but we don’t wanna stop there. Like more of that chunk should get reinvested inside the corporation into the longer term assets. Whether it’s real estate, we tend to be more focused on real estate or whether it’s the markets or whether it’s gold or whatever it is that you’re into. Like we’re not here to judge that, but we’re talking about assets that are volatile. They’re gonna grow over time. And they are going to grow inside the corporation. Keep in mind, corporate investments aren’t going to be completely sheltered from taxes. But as long as we focus on capital gain assets, we can at least kick that can further down the road. We still get a tax credit on half of the upside, which is great, through the capital dividend account. And you should be investing over there as well. So first and foremost, that was sort of our recommendation, is you’ve got to decide how much of that bucket Do you feel comfortable and confident to take earmark and put into those longer term investments? Because that’s gonna be a good play. But the challenge then becomes is what is that number? What’s gonna make you feel comfortable and how much quote unquote liquidity do you feel you need? Whether it’s rational or just emotional or a little bit of both, that’s the part where the real strategizing. comes into play here.

Jon Orr: Yeah, and what you’re talking about about the buckets and choosing and making sure that you’re taking 135 and it makes sense in this case like that in our in our world that fits into that third category which is like our optimization structures like what are the tools and the buckets that we have access to and are we are we strategically deciding on when and why that bucket makes sense so before we kind of keep moving here because I do want to kind of think about specifically big picture here for Mark in terms of what he thinks is in that in that say zone is like, should I start pulling more money to put here or in personally or inside my corporation and making sure that I’m trying to grow and have a great growth structure, but also a great safety structure. You did mention say that that idea, I think that we kind of we kind of skipped not to say skipped, we kind of like fast tracked through the RSP move there like the like, hey, it makes sense to pull from the RSP you mentioned 135. But then you also mentioned He’s making more in the corporation at 26, over 500,000, so he’s paying a little higher on that section of his retained earnings. But I think it’s like maybe just touch to the listener right now and going like, hey, wait a minute, why bump it from 100? Like, yeah, I can take the $30,000 difference between my 100 I’m taking now to all of a sudden make it 135. And is that because all of a sudden now it’s all in the tax free? And then why tax wise does that make sense before we go on to say this bigger strategy for Mark?

Kyle Pearce: Yeah, absolutely. And I’m glad you did kind of like pump the brakes on that a little bit, because we don’t want to gloss over it. When your company starts earning or your corporate, we’ll call it any of your connected companies, earn over $500,000 of net operating income. So this is after expenses, not a gross number. It’s not, hey, we brought in $500, and then we had $200 in expenses, and then we have $300 in net operating income. We’re saying, if that net operating income number goes above $500,000 across the board, all across all of the provinces and territories, you’re gonna pay a higher income tax rate on those dollars inside the corporation. So whether you’re in Ontario like us paying 12.2 % on the first chunk, that next chunk is 26.5%. He’s in Alberta, so he’s gonna pay a little less than the 12.2 on the first chunk, and then he’s gonna pay a little less than the 26.5 % on the bigger chunk as well. The logic here is that at a personal level, if I’m paying 26 and a half percent on any dollars that are in the company from year to year, those dollars at the corporate level, I should be considering what my tax rate, my average tax rate, not my marginal tax rate, my average tax rate is so that I’m at least at the 26 and a half percent mark for us here in Ontario. For Mark in Alberta, you you find that number, right? And we can help people with doing that. And we do this all the time to go, you know what, if I’m gonna pay the tax anyway, why pay the tax and let it sit in the company when I could go ahead and just take it now, pay the same amount of tax, and we’re gonna get more RSP room? In this case, Mark’s taking only about $100,000 per year. And I would argue that’s great if you’re earning less than 500,000 in net operating income in the company. would say, yeah, take less. And I wouldn’t even really go too gung-ho on the RRSP yet, because $100,000 isn’t putting you into a huge tax bracket. But now that he’s got some chunk of cash, it’s around $600,000, that extra $100,000 or so is paying 26 and 1.5%. And that’s going to put him somewhere around the $130,000 or $135,000 mark at a personal level. in order to match that. Now again, I’m speaking Ontario numbers, but this is very translatable to other provinces as well. So I would say to him, you know what, you take the extra 30, the extra 35, whatever it is, you pay the same amount of tax on it anyway, and you immediately take that chunk and we’re going to fire it into the RRSP. As long as you’ve got room, you can do it.

Jon Orr: Right, because you’re not gonna pay tax on it now, you’ll pay tax on it later, but you already paid your 26-ish and now you’ve, say, paid it to yourself, but then since you’re immediately putting in your RSP, you’re not personally paying tax on it, you already paid your 26-ish percent and now you’re just gonna grow it on your personal side.

Kyle Pearce: Exactly. And I mean, the beauty is if you took it, let’s pretend we’re right at the dollar for dollar. you take it as salary, not as a dividend, but if we take it as a salary, we’re going to not only get the RSP room, but those dollars that we take out weren’t taxed in the corporation. They’re going to get taxed at a personal level. But because I put it in the RSP, it’s not taxed at a personal level. So those dollars are $0.00 per every dollar that gets to get invested inside your RSP now. Remember, we have to remember that we get taxed on the entire withdrawal amount coming out. So there’s no 50 % capital gains that are exempted from the tax. Like none of that’s happening, but you get 100 % tax deferred growth, which is a huge win, right? So for incorporated businesses, we really have to be thinking about what I’m earning in the corporation, what are the taxes that I’m gonna pay in the corporation and is there an opportunity whenever there’s a chance to rescue more dollars out of any of our taxable buckets, right? Whether it’s tax deferred in the corporation or in any other bucket, unfortunately, there’s no way to ever rescue dollars out of an RRSP. It is going to get taxed on the way out, whether it’s you or whether it’s your estate, it’s gonna get taxed. Whereas in the corporation, We have way more flexibility, but when there’s an opportunity to break even or better, we want to take the opportunity. And in that case, he’s gonna break even and he’s actually going to essentially pay zero tax on those same dollars. Whereas if he takes it and puts it in his pants pocket or in his corporation’s pants pocket, he’s gonna pay that tax. And it just doesn’t make sense in that particular case. that’s a huge move that again comparative like this is the tough part though you compare let’s say you know he takes 135 and he opens up around $20,000 of RSP room every year when he does that he can utilize that $20,000 that’s not going to be the game changer though because 20,000 compared to 500 or $600,000 of retained earnings you know you can see very quickly that you know this number is a very small chunk of that number. So we’ve got to really focus on this number over here to make sure that we’re gonna maximize and optimize for those dollars because these dollars are taken care of, but it’s not an unlimited bucket. And therefore we can’t just put all of our eggs into that basket and sort of think, yup, I’m good. We wanna make sure that we grow. and essentially maximize the opportunity for the dollars that are going to at least be temporarily trapped inside the corporate structure.

Jon Orr: Yeah, right. And that’s what we want to kind of like strategize here for Mark because it is still in this phase three land of trying to optimize your buckets. And one of the strategies that we are going to be trying to like do for every one of our clients is to go, how do I grow that bucket? If I have money sitting in that phase, or if I’m thinking about the phase, which is an optimization stage, and I’ve got, say, funds, retained earnings, in the corporation, how do I make a good choice between how much should be in my emergency fund over there for business expenses and structure and the structures around that and then how much should I be still growing because I know that this is a deferral method of my income is if I’m solely owning this corporation, how do I grow that to create that flywheel effect so that I’ve got same income, making income on top of income inside the corporation. So how do I? How do I balance that in a way? Because sometimes it’s like, well, hey, I’m gonna put it all into equities and I’m gonna make sure that I have a high growth model over there. Or I might be like, wait a minute, this is my future we’re talking about, so I need to have a 60-40 portfolio. So let’s talk about some of those strategies and the recommendations for Mark.

Kyle Pearce: Awesome, awesome. Now, you know, if we if we think about T4 employees, for example, just for a moment, you know, the original the the sort of go to strategy was a balanced portfolio 60 40. Those in the fire movement nowadays are recognizing that as long as I don’t need to touch the money for a very long time, typically people say 10 years, some even say 20 years, if I don’t need to touch the money, going 100 % equities in those investments. is the better move from a rational perspective. let’s flip over here. And the reason why is just returns, right? Like the returns are going to be higher. The volatility is going to be higher, right? Meaning you’re going to be on a bit of a roller coaster there, especially if you’re not risk managing or you don’t have the means to do so. that you see that floating around a lot. And it’s accurate. It is accurate. You’re going to earn more that way if you were like 100 % equities instead of 60-40. The 40 % for fixed income is there to try to minimize the volatility, unfortunately only during good times, because Black Swan events, everything’s going to drop regardless. But it also drags down your overall growth of the portfolio, OK? Now, I’m going to throw real estate into the equity bucket as well, because equities, real estate, They’re sometimes volatile. Sometimes there’s, we’ll say, higher risk, right? With real estate, there’s cash flow issues. There’s capex expenses. There’s all these things. With equities, you don’t have that same requirement, but you do have the volatility. So they’re both fairly illiquid, meaning if I’m putting a dollar over there, I can’t expect to get that dollar back next week, even next year, sometimes not even next five years. It might have to be even longer. Those in Vancouver and Toronto, markets in the condo market are experiencing that now is like, hey, I’m gonna have to wait this out because the value of my properties has dropped drastically from when they had purchased it five, sometimes six, even seven years ago. these are things that we have to consider when we go inside the corporate structure, what we see is again, rationally, if you took every dollar of retained earnings that you had. and you invested them in a long-term growth asset like the S &P 500, like global equities, like real estate, like whatever it is, pick your poison. If you did that, you’re going to have great growth numbers. Now you’re still gonna have some tax challenge, right? You still have retained earnings that gotta get taxed on the way out. And you have these other things that are going to be there, but the growth of your assets may supersede what those taxes even are. So maybe it’s not a concern for you. The challenge we run into though is the reality of two things. One is how much liquidity do I actually need to run my business? Now, if I’m a manufacturer, right, that’s going to be probably a large number. But even for those who are like consultants, those who are in low, you know, high margin, low expense sort of industries, oftentimes people want to have more cash on hand than they’re willing to put into the markets. Why? Well, if expenses are high, that could be a challenge. What if invoices don’t come in? What if I have a slow period? So the reality is, is that we’ve never actually run into a business owner. We’ve been on hundreds and hundreds. I’m going to argue thousands of calls now with Canadian wealth secret owners around the country. And zero of them are taking every retained earning dollar and putting them into long-term growth assets because of this very obvious reason. What we actually see happening is that the vast majority of business owners are keeping a substantial amount in liquid assets in cash, in other maybe fixed income instruments, like maybe GICs, in things that are creating passive income taxes. And the reality is, is that those instruments can do those things very well. They keep the cash liquid, but we don’t earn a whole lot on them because we’re giving half a way to the CRA. So this is one of the biggest challenges we see for the business owners we work with. And that really opens the door for a massive amount of opportunity that we can we can dig into.

Jon Orr: Right. Yeah. It’s like, if I think I’m putting this into a GIC that earns 6%, I’m really only earning 3 % because that growth is going to be passive income and therefore I’m going to get taxed at 50 % inside the corporation. Or if I’m just keeping it a savings account and I’m earning 4 % right now because I’m on a high interest savings account, then I’m going to only earn two and then all of a sudden inflation’s at three and I’m backwards. I’m losing money year to year by keeping the money liquid. So the question, right, is how do I keep the liquidity, keep control, but still make the dollars work harder?

Kyle Pearce: Right, exactly. And I would say at minimum, what we want to do is we want to figure out like, what’s that comfort number that, you know, within the next month or two that you realistically need to keep liquid, right? So you’re going to have to have some cash. We can’t have zero dollars in the bank account, right? And I mean, you and I, we optimize all the time. We always have a little more cash and we probably should have just out of fear, out of, you know, the unknown, all of those things. But when we look at the other side, as retained earnings grow, so this gets, the more we scale, the more profit we have, the more important it is for you to make sure that you’re sending enough of those retained earnings into growth assets. You get to pick the asset class. But for the other chunk that’s there, and oftentimes what we see happening, first of all, we want to make sure they’re true growth. Because we have some business owners, they’re taking 40 % of their retained earnings and they’re sending them into the market, for example. but they’re not sending it into 100 % equity portfolio. They’re actually sending it into a 60-40 portfolio. That’s a big, huge misstep, in my opinion. Those dollars, when you send them off to that long-term account, let’s get them into long-term growth assets. That’s where we want those to go. Now, you, yeah, go ahead.

Jon Orr: Okay, I see what’s happening here. So let’s just talk about that for a sec. So I’m taking, let’s say I take 40%, I’ve got 60 % still in cash, because that’s my emergency fund, my opportunity fund, maybe it’s in those GICs that we talked about, that maybe you’re you’re evening out on return, or you’re just not getting a return and going backwards. Okay, so 60 % is there, because you’re taking the 40%, and you’re like, look, I’m gonna invest 40%, that’s a lot, that’s a good chunk. But then what you’re saying is that what you’re seeing is that most people are going, I’m going to do a 60-40 split with that, which means I now have 40 % in high growth, you know? then so therefore I’m like, when we say high growth, you’re talking S &P 500. This is like, I get 12 % over the last 30 years. This is the return I’m thinking. There’s 40%. That makes sense. It’s going to be a rocky road. Then you’re taking your 60 % and putting in more fixed income. We’ve got bonds. We’re kind of talking about other assets that are a little bit lower, which is now in a way, mimicking what your other 60 % that is left in cash is just doing. So now you’ve got, if, yeah, well, you can switch.

Kyle Pearce: Right. And I would just flip those numbers around there, John. So it’s like, if you send them off, 60 % of that chunk, right? This is hard. is like, go back to math class for us, right? We’re taking percentages of percentages. But basically, what you’ve got is this 40 % of your retained earnings are going off to a brokerage account of some type, whether it’s self-managed or whether it’s managed for you. And what we’re seeing is that a good chunk of it, usually around 60 % goes into say growth, but the other 40 % are going into these fixed income safe sort of assets. But in reality, like what you were getting at is you already have your safety. Like you already kept 60 % of your retained earnings in quote unquote safe things. You kept it in cash, money markets, bonds, GICs, other types of things that are liquid. less volatile, I shouldn’t say completely because if you are going bonds, they’re not necessarily going to be non volatile, but GICs would, right? And then basically what you’re getting is you’re getting like a, you know, a super duper fixed income like asset approach. It’s almost like you’re super conservative, even though that wasn’t your initial intent, you meant to send the 40 off and you meant for that 40 to not be touched for a really long time, that 40 % ends up getting split up. And basically you end up with essentially like, you know, 25 ish percent of the total that’s actually in growth assets.

Jon Orr: Almost, just calculate it. 76 % of your income would stay in say fixed income assets. So you’re talking 24 % is actually, you’re saying hey I’m putting 40 % or 60 % in there. It’s like boom, I’m actually only a 24 % high net worth investor.

Kyle Pearce: 100%. And when we talk to these individuals, these business owners, and we say, you like, do you have a high risk tolerance, low risk tolerance? Most people say, I have a high risk tolerance. But what they’re actually showing is they have a lower actual risk tolerance when it comes down to the actual numbers than their great grandma. Your great grandma has more risky investments than you do. Now, why? We have to also give respect here to. business owners, you already have a lot of chips on the table in your own business. So that is risk on that’s important for us to recognize here, right? Like we don’t want people going out there being like I’m all risk on in my business, and I take 100 % of retained earnings and I go into more risk. Even though rationally, like, over the long term, the numbers should work out, but we know that people aren’t willing or able to do those things. So what we’re saying is, listen, The money that does go off to that brokerage account, we want to make sure that they do go into truly long-term equity like assets. It’s not just equities. It could be real estate. could be, don’t go all in on Bitcoin, especially right now. Maybe right now there’s a big dip happening, but you get the idea there. We don’t want to see the out of that 40 % chunk or 50 % chunk or whatever you’re willing to send off to the long-term investments. We don’t want to see those in fixed income. Two reasons why, first of all, you already have too much liquidity in the business itself, in the checking accounts, the GICs, the whatever you’re doing over here. But the second reason is, is that you’re actually creating more passive income, right? So you’re actually in a corporate account that’s going to have dividends or interest, and that is going to get taxed at 50%. So you’re kind of like getting hit twice with this passive income issue. So what we actually wanna see people do is get those into the right things, For the rest of that money that you are not willing to say goodbye to for a long time because you’re either concerned about cash flow crunches, concerned about business, concerned about the unknown, whatever it might be, those are the dollars that we wanna now focus our attention to to try to solve the retained earnings issue over the longterm. Because remember, retained earnings gotta get taxed coming out when they touch human hands. So what a perfect opportunity for us to take those dollars and get fixed income like returns without the tax by funding a high early cash value life insurance policy. Now a lot of people like every now and again, we’ll get people that comment on Spotify or on podcasts say the answer is always insurance. And the reality is, yes, it is because it is the only option you have to take those dollars that we’re going to earn around the same amount on the cash value, you’re going to get it without tax plus have a solution to your retained earnings problem. It honestly is the no brainer approach so that you can get the win win win all around.

Jon Orr: Yeah. Do you? Yeah. Do remember the one comment where the person said that and they said like you it’s only it’s it’s a it’s not a great strategy It’s only great for like high income or high net worth individuals who are also business owners. I’m like, who do think we’re talking to?

Kyle Pearce: That’s it. That’s what this show is for. It’s for exactly those people, you know, and, and, know, we try to be, you know, we, try to be, you know, calm about it. And we understand that sometimes like we’re like today’s episode, I hope people are seeing is like, if you haven’t put a dollar into your RSP or tax free savings, and you’re a T four employee, like, do that, like, do that, please. Like we’re telling you that, but there’s tons of other shows to tell you how to Dave Ramsey and how to get out of debt and save a little bit of money. Like we’re talking about people that wanna optimize for these other dollars and high income T4 employees. If you’re earning over $180,000 per year, guess what? You don’t get any more RSP room on the dollars above 180,000, 182, I believe it is. So at the end of the day, like this show is meant for those individuals. So if you’re listening right now and going like, this isn’t for me, You’re 100 % right if you’re not falling into those categories. we certainly don’t want to see people, we meet with people all the time that they come on the show and you know, they’re expecting us to say like, yeah, get a policy going and so forth. The only time that makes sense. The only time is when maybe an emergency fund at a personal level, you’ve got 40,000 sitting there and it’s sitting in a checking or savings account or something that’s accessible. Yes. setting up a policy so that now you’ve again you’re hitting both birds with one stone so now you’re growing your net worth we don’t want to take away from those growth investments the same is true for our business owners we want to make sure you’re growing and that you’ve got a nice good clip going on with those growth assets but it’s for these other dollars that are being underutilized that are sitting there and essentially inflating away right we want to make sure that they’re in the right asset the right tool and unfortunately for those who are permanent insurance haters. Unfortunately, that’s the answer. And until somebody tells me another way to do what it does, I mean, I don’t know where the argument is.

Jon Orr: Yeah, to make this practical for Mark, like the move that we’re recommending to Mark specifically is like, first, come up with like, is that safety net in terms of like, what’s the emergency fund need to be, right? Like you gotta know that number, but in a way you kind of like, you know the number just so you know how much to earmark inside that component. So let’s say every year you have a set of retained earnings and Mark, you know, I think, did you say Mark’s retained earnings were? It was like,

Kyle Pearce: This last year was about $600,000. Yeah.

Jon Orr: Yeah, so let’s say he’s got 600,000. So imagine it’s like, he’s got his, a strategy I would recommend for Mark is to go like, look, take half of that. If that’s gonna be repeated retained earnings, take half of that and then that becomes your premium for your policy. And now every year you’re gonna put $300,000 into your policy premium. That is gonna grow your wealth reservoir. Eventually that will be, Replace whatever whatever the emergency fund for your we use a waterfall method here inside our business We say here’s exactly what our two month three month kind of like Emergency to pay all our bills needs to be and then anytime on top of that. That’s now our opportunity fund So we split, know this container into two components ourselves So like when you start funding the premium eventually you will hit the ceiling on the waterfall and then a spillover Inside that container is now your opportunity fund So imagine year to year to year, he’s continually putting $300,000 into this opportunity fund, which now can do all the things we said. It’s now his fixed income asset bucket. It’s his growth bucket. It’s like, it’s gonna grow at that four to 5%. But it’s also liquid enough to borrow against that asset to pay the bills when you need to. It’s still your emergency fund. Then the other 50 % goes to the high, the equities that are gonna be completely growth. And now you’ve covered the two birds and you’ve made it sustainable to do. Now, both of those buckets grow year to year to year because your business is a money making business. And so all of a sudden now you’re just growing that net worth. And both of these things are working in your favor instead of one losing value every year and the other one being like, well, I could be growing faster, but I didn’t. I tried to like balance it.

Kyle Pearce: Right. And John, so we’ve just kind of framed out a very, and we’ll call this the baseline, right? This is the conversation you have to have with yourself. You can have it with us, of course. You head over to CanadianWellSecrets.com forward slash discovery, book a call. We’ll go through your situation. But here, most often, John, here’s what happens next, though, when we propose this as an idea, a solution. They go, but Kyle, I’m planning to buy a building. because I’m leasing the building right now. I’m planning to buy the building. And I ask, what’s your runway? Five years, seven years, whatever it is. And I’m like, ooh. So they’re like, so I can’t take 50 % and put it in those long-term growth assets. And I say, you’re actually kind of right. You could take a risk, and you could take 50%, put it in the long-term assets. But if you need those dollars, and five years from now, all of a sudden the market’s in a big dip and you’ve got to pull money out, that’s not going to be a good thing. they wanna keep even more than 50 % liquid, right? So now I’m going, this is where some business owners do extremely high percentage amounts that are going into a policy because they have plans to buy another business, to buy a building, to do something where they need the liquidity in the next five-ish to eight-ish years. For example, we had a case study. can’t remember the name we used for the case study, but we had one, a chiropractor who wants to buy the building within a five to 10 year period. Well, guess what? That’s not a long enough runway to know that the market is going to behave itself when you need the dollars to put it in the building. So they opted for a much higher cash value policy. So a much higher premium policy so that it can grow. can be tax free, but money stays liquid. So yes, they are losing on returns in the shorter term, but it’s because they need to maintain that liquidity. We don’t want to see that money sitting there while you’re waiting to find, you know, the practice that you’re looking to buy or the building that you’re looking to buy. So there are cases where our 50 50 that you’ve kind of proposed here today may still not be the right move for you. Now, if you’re more aggressive and you’re willing to take more of those retained earnings into those longer term assets, amazing, do that. But just don’t forget that there is going to be tax to be paid on all retained earnings that you grow throughout your lifetime. And that’s one thing that a policy can do. So at minimum, we want to make sure that policy is representing at least the fixed income portion of your quote unquote corporate portfolio. And for most people at minimum, that should be 30 % of the total. But for some, they want it as high as 50%. Some they need it even more, especially if they wanna do leverage strategies. Cause today we didn’t even talk about the fact that, listen, if you go 50-50 like you propose, John, you can still access those dollars through leverage to put it into other growth assets. So for some people, they wanna get the dollars working in more than one place. It’s not the right fit for everyone, right? Now it’s not everybody doesn’t have that same appetite. But if you do, then it makes a ton of sense. So once again, not sabotaging any of the old school principles to make sure you pay yourself first and get money into the markets and get money into assets, but we wanna make sure that we’re maximizing the use of those liquid or non-volatile dollars that we have trapped inside that corporation.

Jon Orr: Yeah. And that’s the secret sauce that we are hoping to share here with you today. And that’s the secret sauce we want to share with Mark is that we can be doing better and there’s some structures that you can be putting into place to do better. So we did say that we would also share Mark’s health assessment. I keep saying health, this is financial health assessment. by the end of the call because we did talk about those for Mark, but let’s just run through his financial health report from our end. And if you want to get your report, you can head on over to CanadianWellSecrets.com forward slash pathways that will take you to a quick assessment where you can see the different stages and then that you get a health report or a financial health report on those four stages. But specifically, stage one for Mark here, stage one is designing your vision for freedom. for financial freedom, we gave Mark an A. An A minus, strengths for Mark for sure is that he’s definitely got a clear mindset, long-term mindset. He’s been focused on liquidity. He was asking the right questions with us. He’s focused on family needs. He’s got a clear picture of what he wants to do. And he’s got a team around him. He’s got an engaged, significant other to who’s also invested in this process, important part of your designing your vision. Some of the gaps was the uncertainty around his optimal mix and the pay note. So we’re hoping to clear that up for him by giving him some ideas around what this could look like down the road for long term. That’s what your vision’s really about, long term. Okay, stage two, which is establishing your corporate reservoir. We gave him a B in this area. Strengths for him for sure are he’s got retained earnings, which means like his money making machine is doing its job and then he’s got that fund, like that money that’s sitting there. he’s also got, he’s holding coal and his operating company in place. So he’s got some starting points for the, an optimal wealth reservoir. but he doesn’t have that say, insurance policy, process, the flywheel happening in there just yet. and also he could be doing a better job about thinking about the movie gave him that secret sauce here today about thinking about how to strategically plan for the future, which kind of leads in into stage three, which is optimizing your plan. based on the buckets. We gave him a B as well over there. got a good balance already. He’s making use of the RSPs and he’s making use of the tax-free savings account. We gave him some tweaks, like we shared here today, but he’s also thinking about those in long-term. So his gaps were, again, no specific optimization around, say, the RSP or the tax-free savings account. And also he’s missing that wealth reservoir in the strategies around that wealth reservoir. So he’s missing a little bit of opportunity there and we’ve given him those next steps. Last grade here is the fourth stage, which is legacy and estate. We gave him a B because his vision has included what his estate looks like down the road, mostly from the conversation that we had. We didn’t talk about that a lot here today. But he’s got a limited kind of model there. And again, if he establishes the corporate reservoir, especially using that high cash value life insurance policy, it bumps him up to an A because that tool automatically gives you a pathway to leave, leave that estate value tax free to the heirs of the corporation, like the shareholders of the corporation, also family members as well. So overall, We’re giving him a B plus, know He’s got some he’s got some good moves here and in a good a good foundation to build from and He’s got some great next steps to put into place and in his in our eyes. Those are not big moves He’s got some small moves now to just put in place to actually capitalize on some of the strategies to turn them from a B to an a for sure and set himself up for financial freedom down the road in a great place To to live the life he wants and also for his family to live the life you want. So this secret sauce episode, we hope you had some big takeaways as we unpacked some some important ideas and also some passion ideas that we formally believe, fundamentally believe, but also we put into place in our own business. Just as a reminder, the content you heard here today is for informational purposes only, should not be construed as legal tax investment or financial advice. And Kyle Pierce is a licensed life and accident and sickness insurance agent and the president of corporate wealth management. here at Canadian Well Secrets.

Canadian Wealth Secrets is an informative podcast that digs into the intricacies of building a robust portfolio, maximizing dividend returns, the nuances of real estate investment, and the complexities of business finance, while offering expert advice on wealth management, navigating capital gains tax, and understanding the role of financial institutions in personal finance.

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