Episode 163: The Hidden Bias Costing Canadian Investors Thousands

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Are your investment and business decisions secretly driven by fear of losing money more than the potential to gain?

Whether you’re chasing high returns through crypto, real estate, or equities—or sitting on too much cash out of caution—this episode unpacks the hidden force influencing every financial decision: loss aversion. Most Canadian investors don’t realize how this bias shapes their risk tolerance, stalls their portfolio growth, or leads to missed wealth-building opportunities.

In this episode, you’ll discover:

• Why most people demand double the potential gain just to risk a loss—and how that mindset may be sabotaging your growth
• How to determine your true risk tolerance along the “growth vs. safety” spectrum
• A 4-phase framework for building your wealth plan—starting with a safety layer that protects your future while enabling smarter, bolder investments

Ready to stop letting fear of loss hold you back from Canadian financial freedom? Hit play now and learn how to invest with clarity, confidence, and control.

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.

Understanding how behavioral economics—particularly loss aversion—shapes your risk tolerance is crucial to designing a smart portfolio strategy that aligns with your goals. Whether you’re focused on investment growth, financial diversification in Canada, or building personal wealth, integrating a safety layer into your wealth management plan helps balance emotional and strategic decisions. For Canadian business owners, navigating corporate vs personal investments, salary planning, and investing retained earnings can unlock powerful tax deductible investments and business owner tax savings. Leveraging tools like RRSP matching programs, maximizing RRSP benefits, and understanding the Smith Maneuver pros and cons all feed into smarter corporate financial planning and Canadian retirement strategies. From capital gains planning to passive income strategies in Canada, every aspect of wealth optimization relies on robust financial systems for entrepreneurs. Ultimately, success lies in crafting a corporate wealth blueprint that combines financial planning, RRSP tax savings, and investment bucket strategies to fuel long-term wealth creation and business owner retirement planning.

Transcript:

Jon Orr: Let’s talk about how we get growth in our portfolios. And specifically, I think there’s a lot of us that are striving for, I’m going to use the term, growth. Like, I want to say high returns. And we know that when you’re trying to invest, whether you’re investing in real estate, whether you’re investing in the markets, the stock markets, the bond markets,

whether you’re investing in, let’s say, private equity. No matter where your channel of investing is, I think we always kind of say, how do I get the best return possible? And with return, with high return, and with any return, depending whether it’s high or low, comes risk. I think what we tend to want is those high returns. But we, think, are unsure about what is the amount of risk.

that is acceptable or optimal to get those returns. And so what we’re gonna be kind of diving in here is looking at loss aversion, which was talked about specifically in the book, Misbehaving, The Making of Behavioral Economics by Thaler, Dr. Richard Thaler. He based a lot of his work on Kahneman’s and Tversky’s work, so Daniel Kahneman, Amos Tversky, and behavioral economics. so we’re gonna kind of unpack what

what loss aversion is and how it helps us kind of develop the spectrum of our risk tolerance and also our expected gains or expected returns. Because I think the spectrum of knowing where we are along that continuum of I want high returns, but how much do I risk to get those high returns? Like how much is acceptable? How much is optimized to do that can help us make decisions about our investments in real estate or investments in our portfolios or our financial freedom numbers.

in trying to work towards those. So we’re gonna build that, we’re gonna be looking at that, we’re gonna be kind of unpacking how that relates to our four phases of wealth. Kyle, I’m excited to dig into this topic with you.

Kyle Pearce: Yeah, you know what? This is a great book. So definitely head over to our book list if you have not checked it out yet over on Canadian wealth secrets dot com forward slash books. We continue to add books to the list that are really helpful for all aspects of your wealth planning journey. And in particular, behavioral economics, I think is so fascinating because it really brings in the emotional side of how we as humans behave. And unfortunately, like we talk about it all the time, rational thinking like we can give you

what makes sense from a rational perspective if we are willing to actually do those things. And unfortunately, as humans, I always like to say, you know, we’re like pretty smart, dumb creatures. You know, we do a lot of silly things, especially at the worst time when our emotions are high. They cited research in this book, Misbehaving, a round risk version. And the interesting part was it was all about just a simple game and a simple experiment about flipping a coin. Now, all of us know

you know, assuming it’s not a weighted coin, this is an actual coin, it’s a 5050 chance of getting heads or tails, right? So not a really fun game. If let’s say, you know, you and I put some money in and you know, if your heads and I’m tails, I win and then you win, we go back and forth over over 100 trials or 1000 trials or 10,000 trials, it’s likely that, you know, we’ll we’ll break even and that would be a very, very not entertaining sort of way to do things. So what they did is they said, listen, if

the coin flips heads, all right? I’m going to take $100. And if the coin flips tails, you will lose. And the real question here was they were playing with different numbers to try to figure out at what point would someone actually take this game? So, you know, if you’re losing, the coin flips and it’s a loss, you lose 100 bucks.

How much do you need to win if the coin does the opposite and you get to take the money? And of course, if it was 100, you would think, I don’t really want to play this game seems like a waste of time. But what would that number be? And the result from this activity, the result from all of this experiment revealed something really, really fascinating. Now, if we talk about a casino, John, one of the best.

odds in our favor as a casino goer would be roulette I believe. All right and with with roulette the casinos really only getting like like a very very slight edge right they add the two greens zero and double zero and basically the way it works out is like the casinos only gonna like take away like five or six cents for every dollar that you play on average over time. However

like these people weren’t willing to take this game if they want 105 or $106. If it was, you know, tails and they win wasn’t even $110. It was $200 on average was what they wanted in return in order to take on this game, which if we pause for a second and think I mean, of course, I would love that, right? We’re not talking like what what would be the you know, they’re not trying to maximize here. They were saying like,

What would that number have to be for you to want to play this game? And basically they were saying, listen, I want to win double and you get to win half of what I get to win. That’s like a massive, massive win, especially when we know over the long run, half of the flips are going to be tails. Half are going to be heads. And of course there’s going to be a little bit of discrepancy in between, just like in the markets, how there’s some discrepancy in between. over the long run,

things will be of course well in your favor. And to me, it was shocking. I would love to play this game for a whole lot less than 200, but I get it because people do not like the idea of losing money.

Jon Orr: For sure, for sure. And when you think about playing the game, right? So you think, like you’re saying, like people aren’t going to take the game if it was, I flip the coin, if I lose, I have to pay a hundred or I lose a hundred dollars. But if I win, I win, you know, $150. Obviously, they’re saying it’s not worth it for me to play this game because of the more adverse we are.

to loss. And that’s the big findings from from say, the the study from Tversky and and Kahneman, which basically said like, we this two to one ratio became consistent for them that basically we’re saying is that that losing money or losing something of losing something was felt worse by double compared to say winning the same amount.

And that two to one ratio is really the example of why loss hurts more than winning. It hurts twice as more than winning. And so that’s a huge component of, think, for behavioral economics, behavioral choices that we make in our everyday lives. There’s similar findings specifically with world trade.

there’s an activity where you can trade things back and forth and all of a sudden values go up because you you’re gaining something that you want but then when you lose something you want you devalue it. It’s like there’s a lot of nuance here in terms of specifically thinking about loss aversion. And so when we think about investment, we think about investing our dollars, you know, there’s huge implications here about our risk tolerance for gaining money in terms of say our retirements,

or our investments for our portfolios for real estate or wherever we’re investing our money, there’s huge implications and broader implications about that for why we say are hesitant to invest. And I think there’s that two to one ratio payoff is that we have to continually think about is if I risk, if I put in $1,000, people are thinking, I’ve got to make 2,000 on this money because I’m…

I’m risking my my 1000 like this, there’s always this doubling of like, where this people go with this, like, this is why the rule of 7g2 is out there. It’s because people are just constantly thinking about doubling their money or doubling their their wins. And that’s because of this two to one ratio. So, you know, the loss aversion is huge in the in way that we’re structuring things. So Kyle, specifically thinking about, you know, loss aversion and how we’re choosing to invest money. How does that implicate like this continuum we were talking about when

Say I’m a business owner and I’m an entrepreneur, I’m a real estate investor, I’m just an investor. How does that play into how we think about and how we should structure decision making for our futures?

Kyle Pearce: Mm hmm. Well, you know, the part that I think makes it really tough is that we’re all affected by loss aversion and everyone is going to obviously be on some, you know, spectrum of how much it affects them, right? Like some people are blessed with this ability to just go, you know what, you know, I’m not going to get emotional about it. The challenge is, that most people don’t know it until it happens.

right? So when you know, things are going well, you’re like, Yeah, of course, I’m risk tolerant, you know, like I have, have, I can handle downswings. And I understand the market. As soon as it happens, people get highly emotional. And oftentimes, we make poor choices. And so you know, the big connection here is that loss aversion is actually there’s a huge connection with sub optimal investment behavior.

And today what we wanted to talk to people about everyone who’s listening is that somewhere you fit in somewhere in this, we’ll call it a spectrum. It’s sort of like, you know, you’re, you’re on this like continuum between, you know, wanting say to have big returns. There’s lots of people out there that are like, yep, all in on the return. like, I want to, I want to maximize returns, but usually those people aren’t really thinking too much about the risk part.

So they’re usually like not really concerned about that. However, when push comes to shove those people who are on that end, they tend to invest less than they could or should because that thought of getting the big gain all of a sudden, it’s like they start to recognize that as I push more and more money in, there’s maybe a longer and longer time horizon before I may see that money or maybe never see that money again. So for example, I have a good friend.

who loves crypto, loves the idea of crypto. And when the crypto market is ripping, he’s all in on crypto this, crypto that. The problem is though, he only has like $10,000 invested in crypto. So he spends like a massive amount of time focused on the crypto market and new coin, this coin, meme coin, I don’t know, all these different coins, but it’s only with $10,000. And this person’s personal net worth, I don’t know what it is.

you know, to to the penny or anything like that, but it is substantially more that $10,000 probably represents about 1 % of his portfolio, right? Or his personal net worth. And therefore, in his mind, he’s going, I love the idea of the the gains, the returns I can get him in crypto, but he’s unwilling to push in enough where it actually is going to make much of a difference, right? So it becomes more of a fun game, it becomes more of a fun thing to do. And that’s not actually going to necessarily result.

in anything specific. Now on the other end of the spectrum, you have other people that are very aware that you like the loss piece is very concerning and we’re going to pick on business owners because we are business owners and we totally get this and we’re in this this zone where when you run your own business, you already have the built in risk of your business, right? So it’s like your business is not guaranteed. You’re not

necessarily getting a paycheck next week if your business isn’t doing well, or if tariffs have a negative impact on what’s going on in your world or what you’re manufacturing or whatever it might be, you usually have way too much money on the sideline. So similar to the crypto experience, you would like the idea of a good return, but you also have the fear of, I don’t know if my business is going to be successful this month, next month, next year.

and therefore they start to stockpile too much cash, usually sitting in just a savings account of some type, which is then losing money to inflation. And of course, any interest they are earning inside that corporate account is losing about 50 % of it to passive income taxes. So you’ve got this like massive sort of

two ends of the spectrum. have people that are like super, you know, return focused, but then it’s like when it comes down to it, push comes to shove, they’re unable to do anything significant with it. Not, not recommending everyone push all in on crypto, by the way, but that’s a one example. And then on the other end of the spectrum, we have someone who goes, I recognize that my business is risky or that there’s risk associated in that. Who knows?

if and when machines are going to go or whether we need to invest in something, whether we lose an employee and we need to pay for somebody to come in and do something else. There’s a lot of risk there. So they’re keeping way too much on the sideline. And really today, what we want to talk about is how do we take the idea of loss aversion and try to use this idea to avoid us.

Kyle Pearce: using suboptimal investment behavior, which usually go hand in hand when we start thinking about our emotional side and human economics or behavioral economics, I should say.

Jon Orr: Right, for sure, for sure. You know, when I’m thinking about these two ends of the spectrum on the one side, I’m hearing you’re saying that, you know, there’s a person that’s like, I want high gains, I’m not structuring my investments to gain those optimal gains. And it’s partly, it’s probably because of our aversion to loss.

On the other side, it’s you’re saying that people understand, also understand loss, but also aren’t optimally, you know, in making investment decisions, even though they may say, you know, they’re just more clear on like where they’re trying to go. And I think both of these, both of these spectrums, like where you will live on this kind of like decision-making kind of criteria is I think, you know, in order for you to decide where, where your

version to lost lives and where you’re say, hey, I feel good about investing this many dollars in this area or investing this many dollars in this area comes down to I think one of the these phases of wealth creation that we’ve talked about here on the podcast and how we help our, you know, the clients that we support on an ongoing basis think about their portfolios is with that first phase, which is about vision planning.

for your wealth futures? what are some of those numbers that you’re looking to secure? Like we have to have a plan for where we’re trying to go. And we have to know like, what is my, say, fire number? Or what is the number that is going to secure? What is that layer in my portfolio that I want to establish as my foundation? Like obviously your friend here has like, probably has that phase of his wealth journey kind of

Jon Orr: a little bit mapped out. lot of times, to be honest, a lot of the times we talk with our clients and people initially, they’re very unclear on phase one. But I mean, like for him to be like, I don’t wanna put more than $10,000 into this space because I don’t wanna risk my floor, my foundational floor, this layer that I know that needs to be protected to account for my future. But in order for you to know that,

this person on that end of the spectrum must also know, hey, I’ve got this mapped out. I know where I’m trying to go. I know where this number needs to be. I know I need to make sure this floor is safe and the safe floor is in this asset or in this asset and this asset. So they’re making some really good decisions there on that end of the spectrum and then going like, I’m okay with this being risked in this zone because of that. Now,

if this is where the mismatch comes from is that if I’m clear on where I want to go with my phase one, like this is my fire number, this is where I want to retire, I’ve reverse engineered, here’s my foundational floor that I’m structuring to make sure that I continually build on that to get towards my goal, then if the mismatch is that I

I’m unclear about that reverse engineering process that I’m not actually investing enough in these high risk or high risk say assets to get the return that I’m actually after. So if he wants that return and it’s actually tied to his end goal and he hasn’t figured out that like actually investing more gets him towards the end goal on time, then he’s got a mismatch there. And the same would be true at the other end of the spectrum, but

both ends of those spectrums, we have to be really clear on phase one, which is like, where are we trying to go? What are the pieces that are gonna help me get there? What is the timelines? Like establishing that is so essential when to try to figure out where you are on this continuum you’re talking

Kyle Pearce: Right. And for this individual, you know, you had mentioned like they that they probably have clarity around that financial, you know, foundation, we call like the safety layer, whatever it might be. And actually, I’m not sure if there is clarity, like I think I think they’re investing and they’re doing, you know, a lot of the right things. But I don’t know if they’ve actually done the work to sort of go what

would make me comfortable, regardless of what happens with all of these investments. And I think that’s true for the vast majority of people, as you had already mentioned, that thinking about what is it that I want, how am I going to get there? Because for example, for this person, it’s like a fraction of a fraction of a percent of his portfolio. In a sense, it’s almost like a fun little hobby that he’s doing. It’s not really investing, because you’re taking such a small amount, committing so much time and energy to it.

It’s not going to actually have any sort of real impact on his portfolio unless he hits some sort of grand slam by accident, right? By, you know, investing in some new coin or something like that, right? So this is a really, really tough thing for us as just being human, just typical humans trying to think of what is it that I’m aiming for and what’s going to help me get there? Because as you had mentioned, there’s like a combination of like

We are always about volume, right? So the more that you can push to make your pile bigger, the better off you’re gonna be, of course. And we wanna lean on returns, of course, in order to help us get there, but we don’t want to be too, too, say, aggressive. We don’t wanna be too, you know, we’ll call it too focused on one company or one asset or anything like that. You wanna make sure that you’re well diversified enough to help you get to that place.

And then we also want people sort of thinking about, you know, like, what does that safety layer look like for me now and in the future? Now, why I say now is because if you don’t think about how much of your investment portfolio is a part of your safety layer, then you might not invest enough because you might be too concerned that.

maybe I can’t get that money back right away and I might need it. What if something happens in the house? What if something happens, especially for those business owners? So really thinking about like, what does that look like now? And then when I hit that financial freedom number, right? That fire number. first of all, if I don’t know what that number is, this makes this work impossible, right? Like we have to have that in mind when I get closer to that place at what

point would the loss of version be too great for me that it would actually have an impact on my behavior, my, my emotions, right? Where, for example, let’s say you have a fire number of, of $5 million and you hit that $5 million goal. Would you be okay if the market took a massive downturn in your a hundred percent, you know, equities, for example, and you went down to two and a half million dollars. Would that be okay for you?

right? And if the answer is no, then we have to start thinking about like, so what portion of that should be in a safety layer? Now on the other end of the spectrum, we talked to our business owner friends, for example, who have lots and lots of cash, like if your business is is so awesome, and cash flowing and all of these things that you’re able to get to your financial freedom number without taking on as much or maybe any of the risk that others are doing when

maybe they have a T4 income and they have a solid job and they can push more in over there, they might be fine to build this pile up with pretty, you know, pretty risk off assets like that’s possible. It might not be optimal, but that’s something that could be achieved. But the big thing is, is that you have to at least know. So you’ve got to start with getting that vision going so you could go, okay, this is where I want to get to. Here’s the timeline I’m aiming for. And what does it look like if I keep doing what I’m doing?

Because that quote, John, and I’ll let you pull, I can’t recall the book it’s from, but the quote around the idea that your plan, your system is perfectly designed to get you the results you’re getting is exactly what will happen for you on the investment side of things. So it’s like if I’m setting up my life and I’m just putting some money in a savings account as a business owner,

and I’m not really doing much else other than that, well, let’s project that out and see what’s that gonna get you because if you keep doing that, you’re gonna get that exact result that you’re after. On the other hand of the spectrum, if I’m pushing all into equities, like what does that look like and sound like and what might that look like along the way with some of those dips and am I okay? And here’s the crazy part, there’s no right or wrong to it. It’s about figuring out what’s gonna be best for you so that you can get there.

as best you can with, I’ll call it the straightest path, but the straightest path that works for you because it might be wavy for some people that are more risk on and that’s okay too, but it’s about knowing the path you’re on and whether you’re willing to walk it and can you walk it when the path gets a little bit bumpy.

Jon Orr: Yeah, now that book you’re referencing is called Reset by Dan Heath and the quote is, your system is perfectly designed to get you the results you’re getting. And if you’re not willing to say change your system or adjust your system, you will never change your current results. We talked about that in a bunch of episodes in the recent past here.

If I’m going to go back and talk about your layers and what I equate the layers like your safety layer is like, is like when go back to that, that coin flip, it’s like, I’m going to flip the coin and I’m not willing to give up a hundred dollars unless I get $200 in terms of wins. It’s like, it’s like that safety layer is like, what is that expected value that I don’t want to lose? Like I don’t want to lose blank. I don’t want like that’s, that’s your safety layer.

So I think some people like you just talked about like you have to decide where your safety layer is that you’re willing to say like this is the loss aversion. I’m not willing. You know, this is the loss. I’m not willing to say compromise on because it’s the foundation of of where I’m trying to go. And I know that it will change as you get older. It changes as you get closer to say those goals that you’re setting for yourself. So there’s lots of different rules of thumb out there. Maybe we’re both based on your age or

or maybe it’s the 60-40 and then you slowly change that portfolio structure to be something different. Some people say it’s like based off how much knowledge, like for example, that person could be probably who knows so much about the crypto industry if he knows front, back, side, know, details. You know, sometimes you might say that there’s no risk when you know so much. Like I know we talked about this before with that, you know, Grant Cardone.

was heavily involved in real estate investing and to him that was not risky. Alex Hermosy is heavily involved in building businesses and to him that is not a risk. There’s no risk there. So he doesn’t have as much say aversion to risk in that zone. But Alex said he would have to completely switch his loss aversion strategies if he all of sudden became a.

you know, into real estate, because he doesn’t feel like he knows a lot. So so all of a sudden, the risk definition is different there. So so when we think about our portfolio, or like our portfolios, and this like layer of protection, like this floor that we’ve, you we’re talking about, like, talk to me, like, what that looks like. So let’s not talk about, like, the percentage of your portfolio, because there’s tons of rules of thumb out there. But what is like, what does that layer look like? You know, like, what are we? Is that is it all?

Jon Orr: fixed income, like what are we talking about here when we talk about like what this layer could look like?

Kyle Pearce: Yeah, I mean, for us, our biggest thing is all about that that layer, the safety layer for us is essentially not having the number go down, right? So for some people, that might be high interest savings account. Now, unfortunately, for incorporated business owners, that’s not a great move because you’re going to lose half of it to passive income tax. So

not exactly helpful for incorporated business owners. But if let’s say you are a T4 employee and you know, you’re earning income and you know, you’ve got a nice high, high interest savings account and you want to put some in there, I might argue though, you know, doing more like GICs or you know, treasuries or anything like that for some of that portion, it might not be the whole thing, but I usually like to think of it as like starts off.

early in the early stages is a bit of an emergency fund. This can be for a personal household, but it can also be for the business as well, right? Because businesses need an emergency fund. That’s why they keep so much cash on hand. And the other option is we could go into other fixed income asset classes like say bonds, for example, the problem with the bond market is that they’re very volatile, right?

Unless you’re buying a bond and you want to hold it until maturity. So you’re just going to get the yield that’s owing to you and you’ll get your money back at the end. That’s not usually how bonds work. Usually you’re trading bonds just like you trade stocks. And unfortunately, as interest rates go up, bond yield or not the bond yield, but the value of the bond goes down, right? So it’s very volatile. So even a 60 40 traditional portfolio using stocks or equities and bonds,

is not a great move for that asset class. the asset class we utilize, again, full disclosure, we are business owners. So a lot of our funds are in our corporate structures. We utilize permanent insurance because we know that we can design them so that we can have a high early cash value so that we can keep liquidity through leverage.

And we get to grow this asset while also creating a legacy tool down the road. And like we talked a lot about phase one and getting your goal setting. We’re kind of digging into this idea of creating your reservoir, right? Your wealth reservoir going. This is part of that, that safety fund. But then it also automatically helps us deal with phase four, which a lot of people don’t actually get to in their journey.

probably because they get so hung up in these first couple of phases, right? Getting clear, trying to figure out what their wealth reservoir is, starting to grow the pile is in that third phase. That fourth phase is all about legacy and like what’s gonna happen down the road. Well, we get kind of a two for one when we set up a higher early cash value permanent policy and we utilize that as our safety layer, but we also aren’t restricted from utilizing some of those funds.

for more risk on assets. So for us, it’s kind of like a flywheel where we go, okay, we wanna create more safety as that safety layer gets thick and maybe I never, can never be too thick, but if it gets past the point at which we’re like, okay, we don’t need that much in our safety layer right now, we can then utilize some of those funds through leverage to buy more risk on assets. And what we get is kind of the two for one, we get to grow our safety.

We know that that’s not gonna go backwards, amazing, and we get to buy more risk on assets with it. So we kind of get both ends of the spectrum, but all within, we’ll call it what we feel we are okay to take on when it comes to risk aversion. Because I will tell you this much, I am, as much as I know about this field, this industry and finance and wealth building, it’s still.

it still gets me hard. know, when, all of a sudden I just, it’s like a knife, a knife in my, in my gut when there’s a big loss, you know, when the market dips and I’ve got too much money in there, I think that may have came out wrong. So we’re going to, we’re gonna have to cut that right there. So even though I know quite a bit about

the market and I understand wealth building and I do all of this and I help so many clients with it. I’m telling you this openly and transparently that I still get really, really emotional when markets aren’t behaving as I’d like to see them, right? As much as I know it and I know how it how how I should feel. I still don’t like it and the same is true when an investment property things not going very well. It still gets me emotionally even though I try to prepare for it and I try to

you know, find ways to deal with it. for me, and I know, John, you’re very similar. We like to have this balance between our safety layer growing and our risk on layer growing it. Ultimately in my world, this may not be for everyone listening, but in my world, I want to get my safety layer to what I call my financial freedom number base case, which is basically that I would be able to maintain my current lifestyle and expenses.

if I just lived off of my safety bucket and then the rest is all for wealth building and growth and it’s kind of I look at it as like a bonus. It’s a cherry on top so that as I live and as I move through this world that I’ll get to a place where I can still be spending a fair bit of money out of my portfolio without watching that number deep like going down.

Because that’s what ends up happening in a lot of cases when we use a decumulation method is we actually were working our entire life to grow the pile, and then protect the pile and then keep the pile. But then all of a sudden, we’re like, well, now we’re going to spend the pile. And as long as we don’t spend the pile before we pass on, you know, we’re good.

But I’ll tell you that I’m not going to like feel very good at 70, 80, 90, if I’m 100 watching that my net worth has just been dwindling away further and further and further. I actually want to see the opposite happening. So having this like nice, we’ll call it play between the safety layer and your growth layer is really, really important in my opinion, or at least in my planning. And I feel like a lot of people listening could probably relate to that as well.

Jon Orr: For sure, for sure. And I think, you you highlighted, you know, three of the four phases that we talk with with our clients, we talk with, you know, prospective clients when we’re trying to structure their wealth planning journeys. You know, one being we have to have a very clear vision of where we’re trying to hit, what does our life look like, you know, 10 years, five, 20 years, 30 years down the road. Like, what does that look like sound like? What are some of those numbers that we can plan for?

And then, you know, phase two is about establishing that reservoir, whether it’s at the corporate level or at the personal level. What is that emergency fund? What is that opportunity fund? Can we make sure that we’re doing those for both? that like we’re structuring becomes our safety floor. And that safety floor allows us to think about in better terms and really get more clear.

on this dilemma that we’re talking about here with, is about this coin flip idea, this, this, this version to loss we humans have and actually how it has dictated our decision-making because we view loss as twice as, you know, twice as badly as, as, as gains and knowing that fact and pairing that fact with having your system structured.

to be rules-based and specifically having your wealth reservoirs created and set and structured and planned out according to your phase one goals. That’s how you can then say optimize and avoid this like coin flip that helps, know, that dictates our decision-making. That’s kind of my big takeaway here is to think about that knowing, you know, knowing these pieces and how these pieces fit together and knowing our predisposition, you know,

predisposed to think this way, actually how we can reverse engineer so that when downturns happen, we’re already planned for them. We’ve already structured different pieces to make sure that we’re not going to all of sudden make rash decisions because we’re worried about our loss and our aversion to loss. So that’s my big takeaway. So I just only talked about two of those big four phases.

The third phase you you mentioned, which is really the fourth phase, which is about legacy and structuring the legacy that you want to leave and basically your state planning. You know, you can do those through like the methods that you just said, through using your your wealth reservoir as a means to make sure that you’re you’re planning for that legacy as well. The third phase is about, you know, not just growing your wealth, but optimizing your wealth. Like like you said, you said it called it protecting the pile. You know, like what are the structures? What are the strategies?

that we can be putting into place to actually, you know, make sure that we’re not paying more tax than what we could be. How do we make sure that we’re making use of the different say buckets that we have so that we can build our wealth even more optimized than say just plugging and playing. So those are really the four big phases that we view as essential to making sure that you’ve structured your system around those four so that you can hit your goals which is established in the first layer.

Kyle Pearce: Hey, and if you’re curious to see how you’re doing along the journey, head on over to our Pathways page so that you can take a look and figure out which phases of wealth are working out well for you right now and where you could use some work. Head on over to canadianwealthsecrets.com forward slash pathways. And of course, if you’re interested in hopping on a discovery call, we always love chatting, especially with our podcast listeners. So head on over to CanadianWealthSecrets.com forward slash 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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