Episode 100: Why Interest Rates Don’t Matter If You Have Assets [Secret Sauce Ep18]

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Are you focusing too much on interest rates when planning to utilize good debt and conservative leverage for planning your financial future?

In this episode, we dive into why interest rates may not be as crucial as you think for wealth accumulation or for tax free income through conservative leverage against your assets. Kyle Pearce explains how, for those with assets, interest rates play a different role than most realize, focusing more on leveraging these assets effectively over time. He also discusses the concept of using debt strategically, so that even in high-interest environments, individuals can maintain and grow their wealth without being solely driven by rate changes.

This discussion is vital for anyone seeking to optimize their financial strategy. While many worry about rising rates, Kyle breaks down how asset owners can use conservative leverage to maintain growth and cash flow without selling off assets and triggering taxes. This approach provides a smarter, long-term outlook on building and preserving wealth, regardless of the interest rate landscape.

What you’ll learn:

• Discover how inflation and interest rates impact asset values differently than you might think.
• Learn strategies to leverage assets for cash flow without triggering capital gains taxes.
• Understand how to balance good debt and asset retention to grow your wealth over time.

Play this episode to gain a fresh perspective on how to protect and grow your wealth by focusing on strategic asset management, regardless of interest rate changes.

Resources:

• Like this short, “Wealth Secret Sauce” Episode? Tell us in your rating and review on Apple Podcasts. 
• Dig into our Ultimate Investment Book List
• Book a Discovery Call with Kyle to review your corporate (or personal) wealth strategy to help you take the next step in your Canadian Wealth Building Journey!
• 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 corporate passive income taxes at greater than 50%; or,
• …wondering whether your current corporate wealth management strategy is optimal for your specific situation.

This episode helps Canadian incorporated entrepreneurs, business owners and investors to implement conservative leverage as a means to take income in a tax advantaged manner, while accumulating assets to maintain their lifestyle into their Canadian retirement years. By better understanding how Canadian interest rates move and how you can take advantage of those moves regardless of the economic backdrop, you will be able to keep more of your hard earned money in your pocket now and you will position yourself to be able to use conservative leverage on your assets for more lifestyle cash flow without negatively impacting your net worth or the value of your estate.

Watch Now!

Transcript:

Hey there, Canadian wealth secret seekers. It’s Kyle here, and today I’m going to be talking with you about interest rates. In particular, we’ll discuss why interest rates aren’t as important as you might think if you have assets. For those of you who’ve been with us on this journey recently, you know we’ve been talking a lot about debt and using debt as a tool.

It really all comes down to understanding how debt works. Ultimately, one of the biggest factors when using debt is interest rates. The reality is that for many of us, when we think about interest rates, particularly on the debt we’re borrowing, we have recency bias. We think about the rates from last year or in recent times, and that can hinder our thinking. It can make us emotional or even worried about these rates. However, if we zoom out and look at how interest rates work, why they exist, and what happens to asset prices when interest rates move, or even better, before they move, it gives you a better sense of how to plan.

This understanding helps whether you’re leveraging assets to make additional purchases now or considering ways to draw tax-free income later in life. So, let’s talk about what we know recently. We know that rates are much higher than we remember from a year or two ago, right? Things went up fast, and for many, it might seem completely random—like banks suddenly decided to make things harder on everyone. But if we zoom out a little further and look back to what happened from 2020 through the end of 2021, you’ll notice we had a period of high inflation. Central banks worldwide, including the Fed in the U.S. and here in Canada, responded by printing money. This resulted in too much money chasing too few goods and services, leading to inflation.

We feel inflation when we walk into the grocery store, go out for the evening, or plan a vacation. It impacts our spending power. But we often overlook how inflation can benefit asset owners—people who have valuable assets that hold or grow in value, hedge against inflation, or grow alongside inflation. For those individuals, asset inflation typically precedes rising interest rates. If we’re smart and pay attention to economic signals, we can better understand what might be coming.

Think back to your last mortgage renewal. Some chose variable rates over fixed ones, thinking it would be better. But if we had zoomed out, we might have seen the chance to lock in a low fixed rate while rates were at historical lows. Central banks often lower rates to stimulate GDP growth, leading to inflation. They don’t want inflation out of control, but sometimes it happens. To control inflation, they raise rates temporarily to curb spending and bring things back on track.

Even if the value of an asset, like a property, has dropped in the last 6-12 months, it’s likely still worth more than it was in 2020. Why? Because property values appreciated significantly during the first 12-18 months of COVID, prompting rate increases to slow down spending. High interest rate environments might slightly decrease asset prices temporarily, but they rarely fall back to their pre-inflation values. This gives you a tool for wealth accumulation and a tax-efficient way to generate cash flow.

Holding onto assets over time allows them to appreciate. When you need cash flow, you can leverage these assets, which avoids triggering capital gains taxes. Selling assets typically leads to capital gains taxes unless it’s your primary residence or a tax-free savings account. But by leveraging, you get to defer taxes, allowing your asset to grow in value. Even in high-interest environments, borrowing against assets can be beneficial, as long as you’re not over-leveraging without a way to repay.

So, today’s episode is about rethinking leverage. It’s about recognizing what good debt is and using it to retain assets, allowing them to grow. Even high inflationary times can work in your favor. The key is to hold onto assets and use conservative leverage strategies for future cash flow needs, regardless of what interest rates are doing at any given moment.

Let us know on social media how you’re finding these episodes. Are they helpful? Are they making you think differently? What other questions do you have? We’d love to hear from you! And if you’re an incorporated business owner looking to minimize taxes and use leverage strategies to grow your net worth while meeting your lifestyle cash flow needs, head to CanadianWealthSecrets.com/discovery.

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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