Episode 111: The Canadian Investing Secret to Creating Wealth Out of Thin Air (No, It’s Not Magic!)

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What if you could unlock an extra $200,000 in net worth and add millions to your Canadian Investing Strategy and estate, simply by restructuring how you invest?

Many Canadian investors struggle with the balance between maximizing returns and minimizing risk. Whether you’re putting money into stocks, real estate, or private investments, it’s common to wonder if you’re truly leveraging your resources effectively. For those playing the investment long game, the idea of creating “free money” while growing your wealth conservatively might seem too good to be true—but it’s not.

In this episode, we explore a unique strategy designed for Canadian business owners, investors, or entrepreneurs looking to optimize their portfolio beyond traditional methods. Through careful planning and leveraging tools like participating whole life insurance, this approach can create compounding benefits that build significant wealth over time. If you’ve ever thought about how to protect and grow your assets simultaneously, this episode offers the clarity you need.

• Discover how a pass-through investment structure can safely amplify your wealth.
• Learn why this strategy isn’t about taking risks but about building sustainable, long-term returns.
• Uncover the benefits of leveraging whole life insurance to grow multiple assets while minimizing taxes.

Don’t miss this opportunity to transform your approach to investing—click play now to unlock the secrets to smarter wealth-building strategies!

Watch Now!

Resources:

• Dig into our Ultimate Investment Book List
• 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!
• 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.
• Looking for a new mortgage, renewal, refinance, or HELOC? Reach out to Jon to share some options.

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.

If you’re a high earner or entrepreneur looking for a safer way to grow your wealth, minimize taxes, and create financial options for the future, this strategy could be your game-changer. Forget risky moves—this is about leveraging a proven, low-risk approach to compound your assets over time. If your net worth is climbing toward $2M or more, and you’re tired of leaving money on the table with outdated methods, this episode is a must-listen.

Transcript:

Jon Orr: All right, Kyle, we’re going to talk specifically about a scenario that actually we get asked a lot. We get emails a lot. We hop on calls with people who are wondering about their best course of action. we’ve been doing some digging. We’ve been doing some analyzing in the last little bit. And we want to talk about a structure and a strategy that if you are the right type of person, the right type of investor, the right type of entrepreneur,

then you can use this strategy and you’re basically creating money out of thin air. in a way, that’s like, we looked at this particular case, we’re gonna get into the details, but we worked out that in this very particular scenario, which could talk to a lot of our listeners right now, is that in time, you’re going to create a free almost $200,000 into your net worth.

For free, it’s like out of thin air. And we’re gonna talk about those specific details and not only that, but like add $2.1 million to your state’s value. and it’s like, it’s just imaginary money that just shows up over time. And it’s compared to something you may be doing already and you just haven’t been using this particular structure to create this free money, but it’s not for everyone, Kyle.

It’s like, it’s for certain people and right now you’re going like, it’s for the risky people. It’s actually not for the risky people. It’s the opposite and that’s the funny part, right? It’s for probably you. You’re listening right now going like, I’m listening to wealth secrets and I’m trying to do it, know, conservatively and using smart techniques. This is for you, but it’s also, we’re gonna point out who it’s not for today.

Kyle Pearce: Yeah, it’s the opposite.

Absolutely, absolutely. And we’re going to be sort of honing in on this very specific case. And I would argue that we did the case in a very conservative way, meaning we actually sort of tried to make the cards stacked almost like lopsided against this strategy just to kind of give you a sense. And we’ll talk about that in just a little bit. But this was inspired by a listener who reached out, because some of our listeners are, you

Kind of like me, I’ve talked about that. I’ve got this primal question of, I financially secure? So even though I have real estate investments, I have different investments, and some average folk would probably say that maybe that’s more risky than what they’re doing. The reality is, though, there’s some other people out there that are willing to just take what is quote unquote rational to them, and they are willing to run with it.

And this particular individual reached out and he’s trying to figure out, he goes, listen, I’ve heard that you’ve been talking about using participating whole life insurance as a pass through structure. Now, for those who have listened before, you know that our main focus is helping business owners. We’ll talk about business owners and why it’s like even better for business owners. But right now we’re just gonna talk on a personal level, because can it be helpful for people on a personal side as well like T4 employees? The answer is yes.

but only if you’re utilizing it in a way that’s going to make sense for your strategy or your approach. All right, if we back up a little bit, before we even get into the pass through structure idea, if you’re using the old wall 40 % fixed income, 60 % equities or 70, 30, or like whatever split you are, a participating whole life insurance policy can take that sort of

aspect of your portfolio and it could act as that fixed income piece, that cash wedge and actually it can actually be much better at not having any volatility specifically during those black swan events. But for this particular individual, they were talking about like, how can I utilize this tool as a pass through structure before sending it off into

other investments. so the person had said, and really, John, this is what we got our wheels turning here. They said, listen, why would I put a dollar into a thing that earns 5 %? And he’s throwing this number out. This is them using this number, 5%. That would be the whole life policy when I can get 10 % over there. And that’s the sort of like the common challenge. And I was there. I was there for a very long time. It’s like the either or. It’s like if I put a dollar there,

I am not able to earn any money over here in that 10 % column. Now, is 10 % realistic for this investor? Sounds like it is. But for a lot of people, even that might not be attainable, right? They might think that they can get 10, and then they look at their accounts and their average when they bucket it all together, they go, I’m earning six or I’m earning seven. For others, it might be more than 10. But what we wanted to do here today is kind of talk a little bit about

the type of investments that make sense for a pass-through structure like a whole life insurance policy, and the types of investments or approaches to those investments that actually don’t. And we’re gonna try to help this particular listener try to understand whether this is actually a good move for them or whether like maybe it’s just not a good fit for them based on heir current mindset about how they plan to continue investing into the future.

Jon Orr: Right. So let’s talk specifically about like when you say pass-through structure, what that means. So if you’ve been listening to many episodes of the podcast, you might have picked up on what we’re referring to. But let’s get specific here. This particular investor was kind of saying, I usually just take my after-tax dollars and I put them into either my, maybe I’m putting them my registered funds, or maybe like pre-tax dollars.

or I’m putting them into say an unregistered fund and they’re looking at investing. Now you could also say that I’m investing in equities and stocks and bonds, but also, or in ETFs, but you could also say like I’m buying real estate. Like, so you’re, you’re thinking about like, I just take my hard earned money and I buy assets with that hard earned money. This is like what this person is currently doing saying, Hey, they can get 10%. Sure. This is what most investors do. It’s what most investors do. So,

Kyle Pearce: Yeah, which is great, by the way, right? Really gets great regardless of whether they do this or not. Yeah.

Jon Orr: The pass-through structure we’re talking about though is say before say going and putting that money into that particular investment or buying that real estate property or doing whatever you’re going to do with it, you say purchase a whole life policy. These are carefully crafted whole life policies. the money will go in there first. And then what happens is because they’re

carefully crafted, they have a cash value associated with them. And you the money in there will grow guaranteed values year to year to year. This is where you were talking about a 5 % interest, you know, kind of growth, where really what’s happening here is the the policy value cash value grows from year to year guaranteed. You’re saying I think what you were saying 5%, you’re kind of saying like on average, you know, with the dividend that these policies give, you know, you’re going to get that

type of return, even though it’s in a whole life policy. So you’ve got cash value here, which was basically you have an asset you’ve just bought and you’re continually contributing to that year to year. So the pass-through component is you have this cash value sitting in this policy that you’re saying, okay, I’ve created that cash value. Now I’m going to leverage against that cash value and I’m going to take that and I’m going to go and do the same investment I was going to do.

prior to this pass through. So the idea here is you’re creating two assets at the same time and using the pass through first because this asset will grow and compound year to year to year to year, regardless of your leveraged amount that you leverage against the cash value. And then you use that over and say to buy your investment or buy your real estate or do it, you know.

Maybe you you lend, you’re doing private lending. Like you’ve got now this cash value that you can do what you want with, but you’re leveraging it and then investing it. So this person was saying, well, why would I say, do that when I could just skip that and I could go straight to 10 % and not have to borrow my own money to make that investment. So that’s what we want to talk about here, because if you use the pass-through structure, this is what I was talking about at the beginning of this particular episode. If you use the pass-through structure and

And if you are say, very precise about how you’re going to use it and how you’re going to structure it, then this is where you’re going to create free money. Like it will create you free money. It will create money added to your estate value in both cases. It’s not just money that you’re going to all of a sudden have for your loved ones after you pass. You get to create the free money you can have access to now and using it in the pass through way, which means I’m going to take it and I’m going to invest in it. So what we want to do

And Kyle’s gonna get into the specifics here is compare apples to apples by saying like, if we were a person who was going to take this and invest it in, let’s say a 10 % returned investment year to year, we’re gonna show you that that’s where this free money actually comes from because you are passing it through and you are going to say, get this free money by doing what this person wants to do. But this person wasn’t a good fit for this structure.

Kyle Pearce: Yeah, yeah, or at least based on where their head is at. Because what I want to highlight for you is sort of I’m going to run down some of the asset buckets there, John. Because actually, I don’t think I actually filled you in on that ahead of time. they’ve done a great job with our recipes, tax free savings, and different pension plans that they pay in through their work. Got about $1.2 million in there for the two spouses.

This person actually has a very high T4 income. I want to say it’s around 300 a year. The spouse one something a year. like, you know, healthy incomes coming in. And one thing about these investment accounts that is it sort of piqued my interest was there are 100 % in equities, which very rarely do I come across someone who’s willing to sort of pay go all in on the equities. Now I like it like rationally makes sense. If you’re doing this long term,

especially if you’re indexing. We didn’t get into whether he’s a stock pick or anything like that, but let’s say it’s indexing and he’s well diversified through indexes, all equity indexes rock and roll, right? There’s gonna be some ups and downs. We know that along the way, but he’s willing to take that on. Awesome. Has a margin account of $1.9 million. So that’s an unregistered account for those who are unfamiliar. And that’s also 100 % equities. They’ve got a small RESP just in comparison.

But here’s where the interesting part comes in. There’s a private REIT investment for 270. They’ve got a private business equity investment for about 300, and they have a primary residence. And through this, they’ve been using the Smith maneuver for some of these investments. So they’ve got three, six, seven, 50. They have 750 out against their property, which I want to just, the reason I highlight that is,

They’re basically doing the pass-through structure on their home right now. Now, it’s a little different because they probably want the home to live in. I know that’s why I have my home. So that’s a want of mine. So why not use it as a pass-through? So that makes a ton of sense. So they’re not strangers to this idea of leverage for income. Now, the part that’s interesting to me, though, is that if we look to the actual equity side, yes, I would actually 100 % agree.

that it doesn’t make sense if they’re going to essentially put money into a policy, borrow it to buy equities in the market and really never sell. Like they’re just gonna hang on and they’re gonna just let it do its thing. Then this might not be as beneficial, right? You just let it ride compound at 10 % per year, hopefully, right? And you know, there’s gonna be ups and downs and all those things, but on average 10 % per year because there’s actually no tax to be paid on that.

until the capital gain hits way down the road. But where this actually intrigues me is how they’ve been using a very similar like structure to Smith maneuver from their home into some of these private equity funds into these private businesses, private REITs, because these are presenting opportunities where typically there is a timeline associated with it. So usually there’s cashflow associated with it.

And that means these things, since they are unregistered, are going to trigger taxes every year. And that creates an opportunity, an arbitrage opportunity here. They’re already doing it on their home, which is great, but the reality is, that they actually have additional funds that they could be contributing to other investments just through their T4 incomes as well. So where this could be interesting for them to consider,

is by funding before they send it into some of these private deals or for real estate investors like you and I, John, before it goes into the next real estate property. Because these deals aren’t something I can just wake up and do every Monday or that I can automatically have taken out of my account every Friday, like a dollar cost averaging strategy into the markets. These are the types of investments that often have a lag time in between.

and therefore offer an opportunity for you to win on the in-betweens, but then also win on the actual leverage piece. And that’s sort of what we’re gonna explore here today. And we’re actually not gonna include any of the benefit of the in-between when there is no investment happening and that money that return a capital comes back and you go, where do I put it? Well, it either goes on, I guess on the mortgage or it goes into a checking account or a savings account or a GIC.

Kyle Pearce: Well, here, where this money could go back to is actually to the policy, to the loan balance, until you find the next deal that you can get into. And that’s where there’s a massive upside. But today, we’re not even going to explore that. We’re just going to look at it apples to apples as if these properties or these private investments continue to cash flow and you continue to fund them every year for the next 10 years.

Jon Orr: Got it. So let’s get into that specific example, because I think there’s people who are, say, investing in these, say, regular contributions and maybe taking dividends. They are creating, say, an income from their stocks. Let’s get to the specifics here so that we can get the info to the listener right now.

Kyle Pearce: All right, so I brought this spreadsheet up now for some people watching on YouTube, you’re probably thinking, my gosh, this is way too much, not really gonna get into the weeds here, but fact finders like me, you’re probably pause, take screenshots and all that stuff and send us questions like many of you do out there. But what we’ve got here is we’re just comparing and we’re using not that it doesn’t actually matter here, we’re using $100,000 every year.

for the next 10 years is gonna be our discussion piece here, but you can scale that up or down, right? So it could be 10,000 a year, same or similar results. We’re also going to assume because this person, this individual is in the highest marginal tax bracket for their T4 income, we’ve got a 50 % tax rate on the cashflow coming back from these private investments. Now, right now, the ones they already have,

they get to write off interest from the mortgage, right? Because they have the HELOC and they’re borrowing from that HELOC through the Smith maneuver. Same thing’s gonna happen here if we’re borrowing against our policy as collateral. The only difference here is that we’re actually gonna take this money and we’re gonna funnel it through a policy and you’re gonna notice those who have stuck around with us, there is a little bit of opportunity cost in the first couple of years when you’re funding a policy. You can’t actually access

100 % of those dollars. And if you go from the insurance company and you borrow from the insurance company, you actually can only borrow 90 % of the cash value. However, if you go to traditional lenders, you can often borrow against 100 % of the cash value, assuming the policy cash value is large enough, typically around 250 or so. So in this case, we’re gonna make it as hard on this strategy as possible. So we’re only going to

have access to what’s available to us and only 90 % of it. So we’re taking again, the worst case scenarios here in terms of how we’re gonna leverage. All right, we’ve got a leverage rate of about 6.5%. So that’s higher than prime right now. However, some lenders out there or some insurers actually have a interest rate of about 6.5 right now. So we’re gonna keep that as is as well. And we’re going to assume that we’re comparing

to investing in the same asset that they were going to put their 100,000 into, but now you actually have less to put in there. They can only put about 77,000 in in this first year. And we’re gonna compare to what would happen if they put 100,000 in in this investment otherwise. And that’s sort of what we’re gonna compare along the way considering the taxes on cashflow and taking any of the cashflow that remains and putting it back on the actual loan balance of the borrowed funds.

Jon Orr: So like a key move here is in using the pass-through structure is to take the cash flow after, you know, after the tax savings, you’ve considered that after the, you know, paying the taxes on the cash flow that you’ve created because of the investment, you take that excess cash flow instead of putting it in your pocket and spending it, you actually go back and you pay your policy loan.

is this is the key move. Like you want to do this particular move to create your free money down the road because this is how this is going to work. So in comparison, what you’re doing in your straight up investment is you’re taking, the cash flow you got from that investment. if this is like your, I think we’re kind of in the land of like we’re stock investing and you’re going to

put it back into that investment, right? you’re not, there’s no loan to pay off. So you’re putting it back into that investment. So, you know, when you look at understanding that those two dynamics between the two, you know, year to year, you can see that, you know, your policy value will say, say, your policy will grow in value because you’re contributing it to it. You’re paying it’s, you’re paying the policy loan slightly down with the cashflow every, every year.

you’ve got that interest, you know, that’s, that’s there too. So you’re paying off the interest, kind of like a mortgage, like you’re paying this down. And then the other, the other side, you know, that, that investment is growing year to year, but what you’ll see and what this is, and we’ll call this out for the listener here is that, you know, in the first few years, it makes sense. Like your, your, your, there’s no loan to pay back. The investment is going to outpace the actual pass-through structure and using the pass-through structure. But

This is where the free money comes in. if your game plan is, only want to do this for a short time, I want to do this within 10 years, then this isn’t for you. Like this isn’t your structure to use because your investment would outperform using the pass-through structure. But if this is a long-term game for you, if this is say for the future, this is for say more than 10 years, probably like you’re thinking like a 20 year type of…

of investment that you’re looking at here and continuing to do this. And keep in mind that we’re only funding the policy for the first 10 years, and we’re also only funding the investment here for the 10 years. So if you stop at year 10, and then you just let this ride, then in year 20, this is where you’ve created an extra $190,000 because in the past restructure investment, you’ve built you all of sudden the policy loans been paid down and all of a sudden you’re outpacing. like the growth here is going to outpace

the other structure and boom, you’ve got $190,000 free in year 20 and your estate is better off by $2.1 million just by say, choosing to use the pass-through structure versus say, just straight into your investment structure. And this is why in the first 10 years, this is why it’s like, if you’re a stock investor here, you’re like, I’m dumping money in here, I’m all risk on.

I’m going hard. don’t want to like let off the gas. Yeah, I’m right. I’m not right. This isn’t free. Right. This isn’t for you because you need to have that cash flow to pay down that to pay down that loan. But also it’s like here’s here’s the other benefits that I want to point out right like why this is a great option for you is because it’s likely you’re trying to create a few extra things on top of your investment. This is why you’re listening to this podcast right you’re you’re saying like

Kyle Pearce: I’m not selling, you know, I’m not selling anything. There’s no dividends being created or cashflow.

Jon Orr: I’m also investing safely, right? There is no way for your policy value to decrease. There is no way that that’s going to happen. That will grow in value every single time and the death benefit is there to pay off your loan at any time. The other thing is likely going to happen throughout this 20 year period is that there could be cash, you know,

cash windfalls, there could be all of a sudden, you got this value over here that kind of comes due and you can put it down on the policy and all of a sudden you’re creating more opportunity, more opportunity bucket to go and buy the next one or reinvest or all of a sudden creating this more structure. But you’ve got these two assets that are growing at the same time. If you’re just going into the investment structure and not doing the pass through, then when you do have excess capital,

like you won’t have access capital in that structure over there. It’s all invested. And you’re keep you’re keeping reinvesting, say the the cash flow. And when I say a new opportunity comes up, you don’t have access to anything. Because you didn’t say pay down that loan over time, or you didn’t, know, you didn’t have access. Or all of a sudden, you didn’t have that windfall of cash that showed up, like, it’s just not going to be there for you to like, buy the next

the next property or, you know, take advantage. Like you, you miss out on the opportunity bucket that you’re creating in the other option.

Kyle Pearce: Right. Yeah, yeah, absolutely. I think that’s very well said. think, you know, and one of the pieces here that I think is important to kind of reiterate is the idea that we assumed that these investments, and again, we’re kind of focusing on these cash flowing type investments. Real estate’s a great example where I can’t just take the profit from my real estate and put it back into more real estate today. I have to find that deal.

And the same is true for, a private REIT or a private business investment or any other type of private placement or a private mortgage if you’re going to do private lending, right, where 10%, 12 % sometimes is common. Well, I don’t get to just compound the money like you do when we put it in a spreadsheet, right? There is time between these investments.

know, with this particular individual with that private REIT and the private business equity, there will be a time where that money comes back. They may have already agreed to it that after five years, there’ll be a return of capital. And at that point, they’ll have that five, you know, five years worth, they’ve been taking profit, paying tax on it. And then they’re going to get this big chunk. And sure, they can pay down more of their home equity line the way they’re structuring it now. But what this is doing is it’s creating an additional option.

and an additional opportunity bucket. So for those people who are listening who maybe aren’t 100 % equities where they’re gonna throw it into QQQs or the SPY or whatever, longer term asset allocation that’s sort of not gonna be a buy and sell or not gonna be a cash flowing one where you’re gonna actually be taxed on some of that. This is a great opportunity to create additional tax savings, tax deductions by borrowing

against a different asset that’s not just your home. It can be against this asset as well. It’s adding another piece of diversification to your portfolio. And for those who are interested in doing something like that, we would love to have a conversation with you. We’re going to recommend that your net worth is above $2 million. Why do we say $2 million?

Kyle Pearce: It’s not a hard, fast rule, but what we’re trying to do is we do want to keep those people who are still on the journey of filling up their tax free savings of getting their R.S.P.s under control. If they’re if that’s a good move for them or getting started on whatever investing journey that they’re on, we don’t want to see people trying to open up a policy unless

unless we’re looking at it as say an emergency fund which may eventually turn into your investment opportunity bucket. So hopefully for those who are listening in the audience, if this is something that intrigues you and you think that you’d like to start funding this additional opportunity bucket, make sure to reach out to us over at CanadianWealthSecrets.com forward slash discovery. And remember my incorporated business friends, this pass through structure

is completely supercharged when we do this inside of a corporate structure, because it not only does it allow you to do what we’ve described here today, but it also helps you to remove the tax target off of those retained earnings that are trapped inside of your corporate structure. So we will be doing a future episode to dig into the nuance directly inside the corporate structure. But know that everything we discussed here is valid and actually even better for those who do have retained earnings inside that structure.

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. The show also digs into the underutilized corporate owned life insurance as a wealth building and Canadian tax planning tool through the use of participating whole life insurance that can not only resolve the issue of removing the income tax target from the back of your corporations retained earnings and put more money in your personal pocket both now and in the future.

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