Episode 123: Building a Safety Net For Your Aggressive Stock Portfolio | Early Retirement FAQ

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Are you ready to discover a proven way to create consistent, reliable income without sacrificing your appetite for growth?

If you’ve been juggling high-growth investments like equities or real estate but crave the stability of a pension-style plan, this episode offers a refreshing perspective. 

You’ll learn how to integrate insurance-based strategies with the rest of your portfolio, potentially helping you preserve capital and minimize tax headaches.

Even if you consider yourself “risk-averse” or prefer the freedom and upside of a 100% equity allocation, there are tools out there that can provide added layers of security. In this discussion, you’ll hear exactly how fellow investors have balanced their desire for growth with the practicality of safe, long-term wealth-building.

• Discover a creative approach to combining your investments with life insurance to strengthen your retirement plan.
• Learn effective ways to maintain liquidity and seize new opportunities, even if you have money locked in real estate or other assets.
• Hear real-world stories from educators-turned-investors who share honest insights into when and why this strategy truly fits.

Press play now to see how you can protect your wealth, create a steady retirement income stream, and still keep investing in what you love.

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!
• 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.
• 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.

 Achieving financial independence requires smart planning, especially when it comes to growing your net worth and generating passive income. For business owners, navigating the complexities of corporate structures, tax implications, and investment strategies can feel overwhelming. From understanding capital gains rules to leveraging life insurance for wealth optimization, the right approach can transform your financial future. By aligning your strategy with tax-efficient tools, you can unlock the full potential of your business and investments, ensuring sustainable growth and long-term independence.

Transcript:

Podcast Listener: Hello. How are you?

Kyle Pearce: I’m not bad. Long time no chat. It seems like, It seems like we’ve already met before. Based on our emails back and forth.

Podcast Listener: Exactly. How are things, what you do now?

Kyle Pearce: That’s a great question. Basically, we had been running a couple, so we still have a couple consulting businesses. So, John and I have a, consulting business in the education space, so John kind of does that full time now. And I was a part of that full time for, for a long time. And then, and then we kind of ran into all these challenges, tax challenges.

And, you know, what’s the bet like basically, for me, I’m such a numbers geek that I think you, based on what I’m seeing from you, I think you’re a numbers geek, too, as what I’m getting. So I’m running all the scenarios and I’m looking at like, how do we, you know, how do we maximize what’s going on and, and like, lose less taxes specifically went because we had the incorporated businesses.

Right. So when you’re incorporated, basically you’re punished if you take money out, of the, of the company. It’s it’s almost, almost a pointless endeavor if you want to take out anything more than 70,000 a year or whatever, you end up like every other T4 employee and you know you’re paying out the wazoo. So it was all for us.

Tax minimization. How do we, you know, how do we recreate pensions to kind of have a little bit of certainty there with all of the, you know, not that real estate’s risky, but it’s risky in a lot of people’s minds. You know, you just want to know you got something safe happening. And that’s kind of the the path that it’s led us on.

So I fell in love with it. And now this is another arm of our business that we do so love teaching. And I get to do it through the podcast. And, you know, still still kind of miss the classroom a bit. But, you know what? It’s definitely different when you’re teaching people that wanted to come on a call versus students who are, like, forced to be there, right? You have to work a whole lot harder for them.

Podcast Listener: And is that why you became licensed to sell life insurance? Because you saw that as a solution to the problem. So here is a way that you can, be be the solution for yourself and for others.

Kyle Pearce: Exactly. And honestly, the one thing it, it actually bothered me that I spent, it’s been about a decade of, of research around this. And I went around I went around virtual. Luckily, you know, I didn’t have to physically go, but I was working with people all over the country, some of which have podcasts out there. And, you know, they the lack of the deep understanding that I needed.

And I can tell you’re this guy, too. It’s like the fact finder mindset where you’re just like, you just want to you want to make sure, like no stones been left unturned type thing. I just found that I was catching people in misconceptions that they had themselves, and I was like, I can’t move forward with somebody that does that.

You know, like I’m like, if you’re if you if you miss that, then it’s like, I lose all faith on the other side because I’m like, wait a second, you missed that piece. And I knew about it, but I’m not even licensed in this world. I was like, that’s it. I’m just doing it ourselves. So, you know, John and Matt were both like, listen, do it.

And, you know, at least we’ll know, you know, because they’re like, we know you’re not going to stop until until you find somebody who knows what they’re doing and, you know, and then all of a sudden it was like trying to teach other people about it in the industry. And I’m like, you know what? This is a business.

You know, there’s not enough not enough knowledge out there, you know, for the people who it’s good for and the people who maybe it’s not a great fit for. Right.

Podcast Listener: Very interesting. It’s quite, quite the path you’ve taken.

Kyle Pearce: Yeah. It’s, it’s a little crazy and ironically I’m not very I’m very risk averse when it comes to, you know, taking chances especially like financial chances. It’s like I gotta really know it. Really understand what I’m signing up for. Which got me down real estate’s path. I was comfortable with it. I was like, I know it’s there, I know I have it, and worst case scenario, I will get to use that property sometime in the future. That made me feel comfortable. Yeah, exactly. Same idea here.

Podcast Listener: So got it. So I appreciate the extensive modeling and explanations you provided and everything. And it’s all been very helpful. I think the last video you sent over, which was you and Kyle, it I think it left me with maybe one key takeaway observation question that I want to just dig deeper into and, and what it was, I think it was more more so John, saying this was if if the path forward is just continued investment in equities at a 10% rate of return expected, knowing there’s no guarantees, then this isn’t for you.

But if the path is more so, continuing to explore whether it’s REIT or private business investments, then this is a suitable option because of the flow through pass through nature of it. And so I want to make sure I kind of understood that as best as I could, because I’m still at a point where I don’t know how much more REIT or private business investments I’d be doing, whereas I know that I’m pretty gung ho on the under, like 100% equity allocation and continuing down that path.

So yeah, I think it’d be good just to hear your, your, your thoughts a bit more on on that. Yeah. That delineation between the two paths.

Kyle Pearce: Yeah. I’m glad that you got that as sort of like a key piece here because like we, I think I mentioned in the email, like we basically created that episode around this conversation because I’m like, you know, there’s there’s other people out there. There’s I would argue there’s not that many out there that are 100% equity, but I, I’m, I’m with you.

Like, if you, you trust the asset class to use like, hedge or are you like, like what do you use to kind of risk manage or do you just you let it roll and you just know in the end it’s all going to come out in the wash type thing and you’re good.

Podcast Listener: Yeah. There’s nothing other than the long term view that. Yeah. You know, last 100 years. This is what it’s what it’s yield it and it’s all, ETF based. So it’s it’s no like stock picking so to speak.

Kyle Pearce: No. Exactly. You know, it’s like going to zero which is key.

Podcast Listener: Yeah. And I think the other part of it is as you know, like living in in Windsor, lifestyle expenses aren’t extraordinary. So when you look at what a 10% return can do over decades and you look at what cost of living is, it’s like it can create this huge gap. So even if the class were to drop by 50% in any given year, it’s like as long as that delta between where you’re going and what your life looks like is, is pretty significantly different. That’s that’s kind of the basis for my for the theory, so to speak. Yeah, I love it.

Kyle Pearce: I love it. I’m going to put you on to I feel like you would benefit from it is is you should check out hedge II. Now we I pay for a subscription to it, because it’s, it’s macro based. And basically they work on quads. Well, I probably shouldn’t have gone down this tangent until I answered your question.

I will come back to your question, by the way. But they work on quads. I think you’re the type of guy that would really benefit from it. And their goal is all about risk management. So they have the same belief system you have, but their goal is if we can avoid even one massive drawdown by understanding the macro environment and where things are going based on two things, and it’s only two, I mean, it’s more to it.

But ultimately it comes down to two things. Whether inflation is accelerating or decelerating. So we’re not even talking about like what the interest rate is today or interest rate. The, inflation rate is today. It’s about whether it’s going to re accelerate or whether it’s and it’s all calculus, right? It’s like whether it’s going to grow or whether it’s going to decrease in, in in a we’ll call it in inflation because of course inflation is a rate.

So a rate in and of itself is basically how much it’s going to continue to eat away at money every year. They’re just saying like whether it’s going up over time or down over time has a massive difference. And then the second one is GDP. So whether GDP is accelerating or decelerating. And that puts you into four quads.

And based on where the quad is, is how the markets are going to respond, which allows you to say lay off, for example, in a quad for you’re going to lay off equities, meaning you’re going to sell your equity or Voo or whatever, you know, whatever ETF you have, and you’re going to start allocating towards quad for risk or risk off type assets.

So you’re going to move towards TL TLT, you’re going to move towards whatever it might be. So I only share that with you because if you can imagine a world where, let’s say the 10% rate of return, we see that’s an average, we know that’s not real. Like it’s not going to happen that way. It’s going to like past two years, you know, past a year we’ll call it has been amazing.

So it’s been way better while in the down year it’s the same idea. So their goal is like how do we just minimize that downside while not taking away from the upside. So I think you’d like it. Hedge I Keith McCullough is the the CEO. You’ll love it. They do some free stuff too. But basically I, I listen to their macro show every morning. It’s amazing. It’s that.

Two words, one word. So hedge y e sorry y e so hedge. And then I is off the end y e y e so. But only one e for the, for hedge and e and and I got so, so very cool. I just wanted to share that so I don’t forget. I’ll put a link in, in a follow up email.

But let’s get back to your question. So if what you’re saying is true, the reason why the pass through is not as helpful to you is because you’re taking money. You’re putting it into this bucket, you’re leveraging it out into your equities. And if the goal is sort of long run, you’re not ever sitting on any cash, then there’s really not a huge opportunity for the arbitrage to be net positive for you.

If that makes sense. You also don’t have a company or a corporate structure. At least I don’t recall where you’ve got money that has to like get coming out, like the death benefit for a company is hands down the best tool a business owner can have, because it can get that money out to shareholders at some point in the future or earlier through leverage.

But for you, you’re basically kind of stuck in this world where if you go 100% equities, like you said, it’s like you’re going to take these dollars that usually go straight into equities and they’re going to grow a capital gain over time. That money’s going to sit here. Of course, you’re probably adding to it right over time. It’s not just one big chunk.

What we’re advocating is that if we take this money and we put it here first, we’re going to have two things happening. You’re going to have the cash value growing. Let’s use 100 grand as an easy example. Then we’re going to leverage that money. There is a little opportunity cost in the early years as you probably heard on some of the episodes.

So you’re not even going to get all 100 out over here. Why this makes sense for, say, someone who’s like, 60, 40, 7030, even like 8020 is that you can consider this as being the 20 or 30 or 40% of your risk off type, approach. Plus no black swan events for this bucket versus bonds. You know, everything correlates in a black swan event, which again, not fun. But for you it’s going to be a little different. So you’re taking this money, you’re leveraging.

And then you’re putting it over here. Which means there’s a loan out over here. Like there’s a loan owing. And this loan will run for the rest of your life as you fund policies and and continue the cycle. The problem is, though, because your loans growing and your cash value is growing and they’re growing at similar rates, you’re not really getting net ahead here.

The only way this makes sense for a guy like you would be the fact that you do have this added, we’ll call it, you know, death benefit part on 100 K. It’s going to be 1.5 million to start. And these two numbers are going to increase over time. So let’s say you live a less than average life. Then you’re going to win on this side.

But you’re not going to win on say this side. Assuming you live a long life because there’s no money coming back out to pay down on the loan. Whereas when you have rights, when you have, you know, you know, private equity stuff going on, usually it’s like five year term money comes back and then you’re looking for the next spot.

You take that money back, you lump it down on the loan. This asset keeps going. The asset you had, you’ve now refilled this bucket while you look for the next opportunity, right. Whatever it might be. So for you, I would argue the only real upside you’re going to get out of this strategy is that if you’re not able to get this bucket, you don’t have the time that on a spreadsheet, you know, if we live to 100, we get to blow that bucket up as big as possible.

Well, let’s say something happens and you’re not able to make it that far. You’ll get that. Like that’s what you’re going to get. I’ll call it. You’ll get free insurance is what you’ll get out of it, but not a massive amount of upside. Even if you were 9010, I would argue that this could be helpful or more helpful than say, just free insurance.

But if it’s 100% equity and the goal is like money is not sitting on the sidelines, that’s the style, then you’re not going to have an estate problem because you have liquid at like, you know, the the where a state problems come in and become really problematic. Or for people that have a lot of assets that are difficult to sell and liquidate.

Right. So if you’re dealing with stocks and bonds and so forth, it’s like, yeah, there’s going to be tax. There is that thing. But I don’t need to be. You grew your bigger tax problem by growing it more efficiently here. You’re not going to really that much better, you know, with this strategy other than the protection in the next five and the whatever it is.

Podcast Listener: When you’re talking about whether you’re 100 or 90, ten, 80, 20, you’re making that assessment based off the just the rate of return at 6040 is going to be lower than the 10%, which starts to sway it in more favor towards towards the exemption as opposed to the 10%.

Kyle Pearce: Exactly. And even that 10% bucket for some people. Again, what they’re looking for, the ten, 20, 30, 40%, they’re looking for safety, but they’re actually not getting it. Like so it’s like you’re a I’ll be honest and say with your strategy of buy and hold, which most people are encouraged to do, buy and hold. If you go 6040, you’re actually putting yourself at greater risk because you’re actually limiting your upside, and both are going to go down, like when we get into what they call quod for an AGI world, it’s like everything correlates.

So it’s like nothing’s safe. So if you want a real safe bucket, if you want a 10% or a 20% or a five or whatever that is, this bucket will never decrease in value, which is sort of like people can use it as a cash wedge. So for example, let’s say you get to retirement years. You know, if that arbitrage you were talking about is so dramatic, it’s probably not going to matter for you anyway.

But let’s say it wasn’t like, let’s say it wasn’t as dramatic and you want to take an income. If you take it out of the equity bucket, you’re obviously taking it out at the worst time because you have to sell assets while they’re down, say ten, 20, whatever, 30% here. What a person would do with this bucket if, let’s say they weren’t doing this strategy and cycling back, they might just have this bucket as their ten, 20, 30% safety net in that down year.

You pull against this bucket using a loan so that this bucket can recover, and you’re going to have obviously a greater, a greater outcome from that because you’re just letting it sit, letting it do its thing. And the other option too is some people will even go as far as to say, listen, if they were 74 or 7030, this bucket for a number of years keeps growing, as does this one.

When the market does crash, they leverage everything from here and chuck it on there. So like those are like some enhancement ideas that could make sense. Like, I mean, the reality is it’s like, you know, you and I know bubbles can last for however long. And hedge, I suggest that, Q1 of next year is going to be a quad two, which is amazing.

That’s great. That means we’re inflation’s re accelerating GDP is re accelerating in the US. So that means all the equity stuff’s going to go you know great. Right now we’re between a quad three quad two. But like for example if I look at you know if we look at spy for example, and you know, we look at what’s going on here, you know, obviously at some point there’s going to be a dip, right?

So we think about at November 2020, 2021, sort of when we hit, that’s when hedge I by the way, called that we were going to a quad four. And quad four is when this happens. And then they somewhere around here they said that we were coming in to back into a quad two. That’s where this started happening again.

So it’s not about getting it nailed. They called it early was in November. So you missed this little upside but you missed out on this downside. And ultimately at the end of the day that’s going to kind of happen again over here at some point. So I guess what I’m trying to articulate for someone like yourself is there could be a place for this to not be necessarily your ten, 20, 30% safety bucket, but your wait and see bucket so that when the dips happen that you’re not fully invested, so that there is something there that you’d take from here, Chuck, on there.

And then once things recover, you literally can just take a little off the top, refill this bucket again if you want it. Like these are just random ideas here that might match your strategy.

Podcast Listener: Okay, I do appreciate the, it’s not just one solution that you must, you know, this is the best and only solution. So I appreciate your I know why the right word is, you know, openness, that it’s honesty.

Kyle Pearce: Yeah. Honesty. Honesty is important.

Podcast Listener: Yeah, yeah, I think that’s the right word.

Kyle Pearce: Right? You don’t always get that in the industry. That’s sad though, you know?

Podcast Listener: Yeah, yeah. No, but, I do appreciate that because it’s, I know I have a, like, my approach has been, you know, I find a strategy. I like it whether it’s Smith maneuver, life cycle investing, all these different strategies that I’m kind of merging them together and, just trying to determine if this is a, if it has a if it fits a void in the overall strategy.

And I do like the, like that notion of having a bucket to pull from for call it, income, like the wedge, the cash register is as, as you called it, right. But I know to, to get that you’re giving up potentially a lot of upside over the, the decades of, of return on what equities would yield versus what, kind of the alternative would yield.

So, yeah, I think I still have, yeah. I think I need to continue to think about what the what the long term what the long.

Kyle Pearce: Investment, soul searching, you know, it’s like,

Podcast Listener: And that’s why I, I also like, I, I got into a REIT, a couple of years ago. And what really interested me about that was the, like the tax efficiency of it, like the return of capital. So it’s, it is it is a good from a tax efficiency perspective, I kind of view it as a bit of a the safety net or the, the lower growth, higher predictability.

So as I’m thinking about, you know, I’m still 18 years away from 55, but if I retire at 55 and thinking about what can yield that, you know, a hundred grand in cash flow while the equities continue to grow. And, you know, I rely on on that bucket for donations or other large one off expenses. Yeah. And rely on more of a stable generator of cash for, for the, the, not just the normal day to day living. Yeah. So that’s why I like the cash wedge appeal to me. From that regard.

Kyle Pearce: We have this like I think we mentioned on one of the up, we did a full episode on like trying to replace a pension because like, you know, I came out of education, as you know, and it’s like the golden, you know, it’s sort of like the the best pension out there is what everyone, you know, believes. Right.

And you look at how much money goes into this thing. And when you recognize and you realize that it’s actually you putting in a dollar and then the government’s putting in a dollar or two, you start to recognize that it’s like you actually don’t get a lot off of it, you know, in terms of like how this thing now, mind you, it grows, the pension itself grows, that the fund grows.

And that’s what sort of got me recognizing that like, oh, like in it’s just an insurance company running this pension fund, you know. So like that’s exactly what the insurance company does behind Whole Life. It’s basically a pension that’s offering you different sets of guarantees. And so we kind of, you know, the three of us, myself, John and Matt, we kind of went in in our heads were investors.

So we’re we’re in a lot of real estate stuff specifically. And we kind of said, you know, like let’s try to at least get our asses covered with a policy at minimum, to replace our teacher pension that we had. And then everything else can do. You know what it does, which is all like we’ll call it like the gravy, the, you know, the upside stuff.

So it’s almost like for us a bit of this, like call it like, I don’t know, maybe even though history is history. Right. And you look at the numbers and you go, if we just do this thing with, say, the index funds, everything should work out. But we’re like, but what if it doesn’t? That’s like where my head goes.

So we went, you know what, let’s do that as our main, kind of our we call it a foundational level. So it’s like at a base case we’ve replicated that minimum number, which for a teacher, pensions only like 60 grand a year. After taxes like 45,000 a year. It’s actually not all that much. Right. And it’s start, you know, people start to go, holy smokes.

Like that’s a big difference from say, 100, 100 plus a year to 60 grand a year. Like that’s a big difference in terms of what, you know, you can earn one day and then the next day you retire and, you know, now you’re way down here. But we said, you know, let’s do that. And then in the meantime, though, we’re utilizing those cash buckets to make other investments too.

So it’s kind of the idea I had mentioned to you where it’s like kind of using it as like an opportunity fund. In the meantime, we’re not scared to utilize the cash value, but we do want to know that there’s something there that sort of solid in case we screw up, you know, because, I mean, we’re human, you know, and we I always say, I know what I know until I recognize I didn’t know something.

And then you go shoot. You know, you start to question. But that’s sort of our, our stance on it. But yeah, like, as you move along, I’ll tell you this much. I don’t know how long you’ve been on the journey for. It took me ten whole years. I think I said it earlier, to really understand how this tool works and why it does what it does and like to also kind of ignore certain parts of it, because the one that’s hard and you get fixated on two is like the rate of return of the tool itself.

And I’m like, it’s just a tool. It’s not the investment. And it’s like when I could come to see that and recognize it as just a little bit of a safety buffer. That’s when I started to go, okay, I think this is something I want to have just from a diversification standpoint, just so that I’ve got access, you know, so that may or may not, you know, fit your, your scenario.

But I love the fact that you’re well researched enough to know that, you know what, for the vast majority of people, at least in their working years, at least in their working years, 100% equity is a logical move. And only once they have a significant amount of assets does it make sense to start thinking about maybe having this other sort of bucket there.

So like most people, I’m just I tell them, we get on a call, I’m like, you haven’t filled up your tax free savings account yet. So like, why are we discussing this? You know, over here they think it’s going to create more money for them somehow. I’m like, that’s not this is something different. You know, this is, an emergency fund for someone like yourself, but you don’t need an emergency fund.

You have a line of credit. Go do that, you know, and go take care of business. But, it’s easy for people to get a little tricky.

Podcast Listener: One question I have is the different models that you shared with me were you start off at 35,000 a year, then we said, why not, 13,000 a year? And then I think even the most recent one was 100,000. So can you let’s just say I don’t do anything for for ten years, and I get to a point where, you know, the future is more clear.

I know exactly what the next ten years after that is going to look like, or how we expect it to play out. Is there like a catch up accelerator where you could put in? Is there a maximum that you could put in in one year to get some of the same benefit, but instead of building up over ten years, you’re just focusing everybody this huge amount right now. And I could still have the same benefit going forward.

Kyle Pearce: Yeah. Let me show you. So the best you can do in Canada and it’s I’ll call it now because there used to be where you could actually like lump sum it and you can just like chuck a big chunk down and then seal it up and let it roll, you know, which is great, especially for guys like you and I.

Where you go, hey, it’s there. It’s now, you know, it’s accessible via cash. You know what I mean? It’s like you’ve got the lump sum. It’s great when there’s like, you know, let’s say like, an estate, you know, you receive some sort of, well, inheritance is the word I’m looking for. You receive an inheritance, there’s a large sum of money, and you go, I’ll put it here for now.

You know, now we can’t do that in Canada. But I’ll show you what can be done. I’m going to use 100 only because, this was up from this morning, and it’s easy and scalable. So, as you probably know by now, whatever we make for that cash premium, there’s a minimum and a maximum the way we design it.

Here’s the minimum for this policy. Here’s the maximum for this policy. And we can do a couple of different things. The first thing we can do is you can fund up to two years all at once. They call it backdating by 364 days. So it makes your age one year younger. Cost of insurance then is slightly smaller because you’re a little less likely to die, and so forth.

That’s one thing that can be done. The other thing in by nature of how we designed the policy, this maximum is actually what they call over funding. So we’re already applying this over funding mentality that you’re mentioning. Like how do we like catch up. Because if we minimum fund for the rest of your life, you get mostly death benefit and less cash value.

Okay. So that’s kind of how we structure it. The one thing that we cannot do is, like I said, this large lump sum and offset what we would have to do at whatever age it is, is now you have to get approved for the insurance at your new age. That means you also have to still be healthy and I guess not be too old.

And by too old, I usually say like anything up to 70 can work. I say can because sometimes it still doesn’t make sense financially by that point to do it anymore. So we run scenarios for people. But let’s pretend you did this policy. The earliest you can offset as of today is around five years. With a policy structure of this size.

So what that means for you is like, let’s imagine you had a lump sum today of 500,000. You could put 200 in right now. And next year in year two, you’d put another year three, year four, and you’d be essentially done. Now that is based on the current dividend rates. So if dividend rates increased, you might even be less time.

If it decreases it might be a little bit longer. So it’s important to note that that can potentially change things. So that’s the earliest offset. I tend to encourage people thinking on a ten year time horizon because it eliminates any possibility. But for a lot of people, what we would do is say, you know, you have X number of dollars.

This is what you’re thinking about. We might run it at the maximum for the first five years. You could potentially offset at that point. But what might it look like to put in the minimum for the next few years? So someone who has, say, 700,000, we might set up a policy like this, get 500 in within the first four years because you offset you.

We, we did two at once. And then after that we’ll worry about slowly adding the rest, just so that there’s never a chance that you’re not able to say offset, and there’s no more money to go on this thing. So I really just try to we kind of play with the scenarios a little bit to try to put you in a place.

It is an insurance tool with lots of guarantees. So I always like to get people sort of like guarantees. I don’t want people kind of going like, what if we run out of money? What if this what if that try to get people to a place where it feels good. Now, what will happen to you if you fund for a full ten?

Even if it’s max, then minimum is you’re going to just notice that the actual cash value growth is going to be a little bit more aggressive on going for the rest of your life. So the challenges, let’s say it’s ten years like me. Had I known what I know today, I would have started all of this stuff ten years ago.

But it is what it is. I can’t go back. I don’t lose sleep at night over it, but I would have had some policies that I had cheaper insurance are now at the point where when I put more money in the cash value compounds are harder. So what I mean by that is imagine I did this for ten years straight and then I get to year 11.

You can see, well actually let’s look at your 9 to 10. I put 100 in in this year. We went from 1.05 million to 1.2 million. So I put 100 in. And it’s like that 100 upped my cash value more significantly. Now it’s not rocket science to understand. That’s just compound interest working right. There’s already a big bucket and this is growing regardless of whether we put money in or not.

But because I’m using it, me personally, maybe not you, but because I’m using it as a pass through. I basically taking my 100 and making it into one point or sorry, 100 and making it into an extra 180 of leverage able cash to do what I want to do with it.

Podcast Listener: All right. And then in in the example where you build in the cash wedge, you would be like the cash wedge can essentially be any percentage of that cash value that you want it to be you in your model. You just made some assumptions, but from there it becomes a cash wedge. Cash wedge. And correct me if I’m wrong, like the interest on that cash wedge, you theoretically don’t have to cash flow back into the policy because eventually it’ll just at the end of the day, you owe that money against the policy and the payoff be less than.

Kyle Pearce: 100%. And a couple nuances to add, just because I know you’re you know, you’re a deep thinker. So some people I won’t mention this part because it just overwhelms. But one of the beauties of it is that it acts like a line of credit, but without interest. Only do it every month, right? So it acts like that. But here’s the other nuance that’s really helpful is that they actually they calculate the interest each day based on the balance.

So just like any loan word. So it’s like, hey, you, you have this much out. Here’s what the daily interest is for that. But what they’re doing is they’re tallying that in the table. And they’d only Kapolei capitalize it at the end of the year. So that means that you’re basically getting compound interest annually instead of semiannually or monthly or like credit cards daily.

So that has a significant impact. Specifically, if let’s say you do put money into an investment and let’s say you now have no cash right now, but as cash comes into your life and is there and available to you, it would make sense that you put it on the loan because the loan, you’re actually knocking down principal for the remainder of that year.

And essentially by the end of the year, that interest would essentially be covered. Plus the balance will be lower. So if you were to do, you know, again, I’m not an infinite banker guy or whatever, but this is where they do make sense, is that if you borrowed money for, say, a car and you were to make the same payments back to your policy that you would had to have paid to the bank, you’ll likely be ahead.

Assuming the interest rates are similar, because we’re not compounding the interest in this scenario, whereas they are compounding it in the car loan scenario or in the line of credit scenario. So basically have more money go into principal throughout the year before the interest is fully calculated and compounded back to the actual loan balance. So if the interest was a thousand bucks throughout the year and you’ve been paying down this, the loan balance, that loan balance is only going to pop up by a thousand bucks at the end of the year, instead of having paid interest on all of the interest throughout the year.

So these are like nuances that, again, not like massive game changers, but they are good to know. And for me, if there’s money sitting around I’ll chuck it on a loan. Like right now we have some money out of one of my policies because we bought a property in Texas. So took that money, chucked it over there. We’re waiting for the dust to settle, which means getting it, you know, getting it rented, dealing with all that stuff, yada yada as the money comes in.

Well, then just chuck it onto the loan until the loans back, and then we, you know, we carry on looking for the next opportunity. So that’s where it’s really helpful for guys that are doing private lending, are doing, you know, private deals, investment properties. But if that money was never coming back to me, now it’s just a permanent loan out against the policy.

It’s just sort of free insurance. And I might even argue it’s like, you know, you you probably you’re going to actually it’s going to cost you a little bit, but not a whole lot because there is that arbitrage between how it’s growing and the interest you’re paying. Right.

Podcast Listener: Okay. Well, extremely helpful. Like, honestly, two months ago, before I started even listening to your podcast, I had zero understanding or thought about this as, as a financial strategy. So ultimately, through the podcast and then over the last few weeks with you, I’ve learned a lot. And the way that I operate is I’m just going to continue to, to listen, read, learn.

Like, if not now, then there may be a time, right? Especially as I’m thinking about that, like cash wedge or as I think more about what next rounds of opportunities will be and different cash flowing kinds of investments. So you’ve, you’ve opened up just a completely new avenue and way of thinking for me. So I thank you for that.

Kyle Pearce: Awesome. My friend, that, makes us feel awesome. I know, I am recording this, so I will share this recording with John so that he can get, you know, get that feedback as well. Like, our goal is exactly this. So, like, when we have clients, I call you a client, even though, you know, we’re not officially, but, I call you a client because ultimately, at the end of the day, it’s about understanding.

And it’s like, as you think creatively about these things, right? Which guys like you are going to do, there might be a time where you go, you know, what I it it makes sense for this portion. And if and when that’s when folks, you know, kind of, you know, show up out of the, you know, out of the woodwork.

It’s not it’s not one of those things that it’s right for everyone at exactly a certain time. So thank you for doing some pretty awesome stuff there. And, I will send along a follow up email to you, with a booking link if you ever want to connect in the future. Also send you a link to Haggai.

And, yeah, I’ll see if I can dig up something that’s in the public domain for you to check out. I think a guy like you, you’d really appreciate there perspective and how they approach things. And, yeah, it might be able to save you from, you know, a drawdown sometime in the future.

Podcast Listener: Absolutely. Okay. Really appreciate how you guys are doing great work. And, the fact that your, your Windsor based guy’s trust goes way up the roof. If I gotta.

Kyle Pearce: Trust the blue collar guys, right. Here we are. Awesome, awesome. Hey, hopefully we’ll chat soon. And, if not virtually, maybe somewhere, in town. We’ll grab a coffee or something.

Podcast Listener: Sounds great. Really appreciate it.

Kyle Pearce: Go take care. David.

Podcast Listener: Thank you. Good day.

Kyle Pearce: Thank you too. Buy now.

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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