Episode 250: How to Handle Stock Market Drawdowns Without Ruining Your Retirement Plan

Listen here on our website:

Or jump to this episode on your favourite platform:

Watch Now!

Are market drawdowns making you question your retirement plan—or tempting you to panic when your portfolio drops?

When markets pull back, it is easy to feel like everything is suddenly at risk—especially if retirement is getting closer or you are finally starting to build real momentum with your money. This episode digs into the emotional side of investing during uncertain times and shows why drawdowns feel very different depending on your timeline, income needs, and overall strategy. Whether you are a business owner, a salaried employee, or someone trying to make smarter wealth decisions, this conversation helps you think more clearly when volatility hits.

In this episode, you’ll hear how to:

• understand the real “cost of admission” that comes with investing in growth assets like index funds
  
  
• tell the difference between risk tolerance and risk capacity so your plan actually matches your stage of life
  
  
• create simple rules and strategies for handling market pullbacks without making emotional decisions you regret

Press play now to learn how to stay calm, stay strategic, and make better financial decisions when the market gets shaky.

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.

For Canadian business owners, building long-term wealth is not just about earning more income—it is about creating a Canadian wealth plan that balances corporate wealth planning, tax-efficient investing, and financial freedom in Canada. A smart approach to retirement planning in Canada includes understanding investment risk capacity, knowing the difference between risk tolerance vs risk capacity, and having a market volatility strategy for market drawdowns, index fund drawdowns, and how to handle market corrections without losing sight of your goals. Whether you are focused on pre-retirement investing, passive income planning, or an early retirement strategy, the right mix of diversification and drawdowns planning, financial buckets, and an investment bucket strategy can help you stay invested during market drops while supporting a decumulation strategy later in life. For the Canadian entrepreneur finance mindset, this also means thinking through salary vs dividends in Canada, RRSP optimization, optimizing RRSP room, personal vs corporate tax planning, capital gains strategy, business owner tax savings, corporate structure optimization, and corporation investment strategies. Add in real estate investing in Canada, financial diversification in Canada, real estate vs renting decisions, secondary flywheel investing, legacy planning in Canada, estate planning in Canada, and financial systems for entrepreneurs, and you have a clearer path toward building wealth that supports a modest lifestyle wealth vision, stronger retirement investing strategy, and lasting financial independence in Canada.

Transcript:

Jon Orr: Okay, at the time of this recording, if you look at the decline in some of your positions, maybe some of your retirement funds, places that you have money sitting there, maybe the S&P’s are down a little bit.

Kyle Pearce: And there’s a war.

Jon Orr: Partly, yes, there’s a war. You know, if you’re all in on oil, good for you. But you know, like this is the reality of what we are when we’re trying to build retirement funds. And you’re trying to do this as a do-it-yourself investor, or even if you’re not a do-it-yourself investor and you do have funds that are being managed, you’re probably looking going like, ooh, I don’t really know if I really wanna pull any assets right now. If you’re in your decumulation stage and living off these assets, or you’re saying like, I’m really happy right now because I can start layering more in.

Jon Orr: There’s always emotion — I guess what I’m trying to say here — when you look at the markets and they decline for whatever the reason happens to be. And that’s what we really want to talk about. When we look at drawdowns, how do we respond? And what is it that we help ourselves with to overcome the emotions that we feel and the behaviors that come with that when we have drawdowns in our retirement strategies and in our assets, whether it’s real estate or whether it’s in the markets? How do we deal with drawdowns? That’s what we wanna talk about today. Kyle, how do you deal with it?

Kyle Pearce: Well, I think this is a great sort of build off of our conversation about diversification from the last episode. And really, there’s a couple different approaches. The kind of prevailing message out there nowadays is this idea that you just take the Morgan Housel approach, the Ramit Sethi approach — like there’s so many books out there, Millionaire Next Door, all of these folks are saying like, listen, if you just take your money and you put it in the market in index funds, everything’s gonna be okay.

Kyle Pearce: And therefore there is this sort of cost of admission in order to play that game, and the cost of admission is just knowing it’s not if but when the markets are going to pull back. And how hard they pull back is going to depend of course on the situation. And if you’re okay with that, if you’re comfortable with that, if you’re just like, yep I’m going to do that, you’re probably going to be okay.

Kyle Pearce: And then there’s the complete other side of the coin, which is if we don’t want that — we call this low risk tolerance or low risk capacity, and these are two different things, right? Risk capacity is like, you literally can’t handle this financially. Maybe you’re in retirement and it’s actually going to impact your income. You may have to choose a different strategy. Like if you’re just starting right before retirement, it’s harder for you to potentially just take the advice of these books and say, hey, set it and forget it, and 25 to 30 years later it’s all going to be okay.

Kyle Pearce: That’s fantastic advice when you’re far off, but when you’re closer and more and more people, especially those listening to the show, are a little further along — they’re like, I finally have some extra money that I can put into something other than my expenses for the year or my rent or my high mortgage on my own primary residence. They start looking at these investment strategies and they might have a goal of maybe slowing down in five years. Well, five years is a much shorter timeline and therefore my risk capacity may be different.

Kyle Pearce: Your risk tolerance — you might be okay with drawdowns, you might be okay to ignore and set and forget — but the reality is that if five years from now we’re in a large major drawdown, that could actually put you in a position where you go, actually I can’t retire now. So there’s a lot of complexity that goes on here. And folks that are out there on YouTube, podcast platforms, TikTok, sharing just invest in indexes and everything’s going to be okay — which is not a lie, it’s true that will work over an extended period of time — but there is the cost of admission, which is drawdowns, which we have to emotionally be okay with. And then there is the nuance of maybe I’m not actually able to deal with that.

Kyle Pearce: But then on the other hand, if you do diversify, the goal is to reduce the risk from making a drawdown as hard or as difficult or as far down as it may be. The problem though when we diversify is it also limits your upside. So there’s give and take to this game. And it’s not right or wrong, and it’s not all in or all out. It really does depend on every individual, their mindset, but then also their trajectory as to whether one way or another actually makes sense.

Jon Orr: You can definitely see, you know, like when you’re thinking about this, you have to ask yourself the question — am I paying the price of admission? If so, this is a non-issue really for you. You’re just going to deal with it when it comes. But you also are forced in a way to think about it. Let’s say I am gonna pay the price of admission. No matter what, your course of action and the moves you make today still will matter, because now you have to say, okay, does that just mean I have to then contribute more and therefore try to build more of that bucket so it’s bigger — so I’m creating a cushion around that, so that when the drawdown happens and my price of admission is cashed in, I actually don’t have to pivot my plans?

Jon Orr: Or the other component is do I stretch my timeline? Do I wait longer because I can’t contribute more to make my pile bigger in the timeline I have between now and my retirement? So then if I want to create my cushion, maybe I have to work longer into my retirement years because I have to account for this. And I think these are some of the strategies that we think about and we try to decide which one can I do, or maybe I hope for the best. Sometimes you hear that strategy — like I can’t contribute anymore, I could retire early, it depends on how the market does. That’s not the best strategy to have, a hope and pray strategy.

Jon Orr: You’re going to want to figure out which one of those you’re in. But in a way that’s how people are dealing with the drawdown and being okay with it, because it is going to happen whether I have a balanced portfolio or not, or whether I’m all in on this ETF or not. And that’s my price of admission. Now I have to make decisions today that will affect my future, knowing that that’s going to happen. I think we have to come to terms with that. And that’s partly bringing future decisions forward. And that sometimes is stressful to think about when you have to battle these emotions that you know will come eventually.

Kyle Pearce: Yeah. And I would say what makes this so much easier is starting early. You know, the conversation is so much easier if we are early in the journey and we just get into — like we said in the last episode — the routines. The problem is the vast majority of Canadians, and in many cases this includes folks that are listening to our podcast, because we have lots of business owners that listen and typically they’re so all in on their business that they haven’t actually — and let’s be honest, their business is an investment, right?

Kyle Pearce: Like they’ve been investing time, they’ve been investing capital. I would argue they have concentration risk in their own business and they’re like, well, this thing’s producing the greatest amount of dividends compared to any other investment out there. So it makes sense that you’re going to put more time, energy and money back into your own business because it’s producing the greatest cashflow out of any investment out there.

Kyle Pearce: The problem is that if I’m all head down in the business and it is taking a lot of time and energy to run that business, there will come a time where you may not want to do all of that work. And ultimately, at the end of the day, that’s where the second flywheel comes in, right? We talk about the two flywheels. Your own business — getting that flywheel going takes a lot of your time and energy. And that’s really important. We want to get that flywheel going so it’s spitting out cash.

Kyle Pearce: The real part though is like the earlier we can take additional capital from that flywheel and put it into places — even if one of those places is going to be low returning, like say a corporate owned insurance policy, high cash value, just to hold that extra capital just in case this business flywheel slows down and you need to pull some of that money back — it’s there, but it’s now compounding tax-free. And then right next to it, you have your other longer term assets. These are the ones that we want to put in there and have no expectation of those dollars coming back, and get them working for you.

Kyle Pearce: Again, it’s a volume play, especially early on. It’s not necessarily about getting the strategy perfect. It’s about getting a strategy going so that you can start that secondary flywheel. Because if it’s just your own business’s flywheel that’s going, and if you’re not ever able to truly step back from your business and see the flywheel work on its own, that is not a saleable business. And it’s also not a business that you’ll be able to retire from and live off of, because the flywheel isn’t running without you there kind of pushing it along.

Kyle Pearce: So we’ve got to make sure that at some point we build this secondary flywheel. And if you’re a T4 employee, the same is true, right? You’re going to work every day to run your daily cashflow flywheel. Even though you don’t own the business, you’re going there, you’re building this flywheel, and we’ve got to find a way to get the secondary flywheel going over here. And that may look incredibly different for a T4 employee than it does for a business owner. But the reality is we’ve got to get it going.

Kyle Pearce: And ultimately, when we look at something like a drawdown, if that flywheel is going and if we have a long enough time horizon, it certainly makes it a whole lot easier for you to go, you know what, those extra dollars that I’m putting into this secondary flywheel — I should be backing up the truck on the market right now because I have an opportunity here, and there’s a long enough window that even if it keeps going down for the next six months, over time that is actually going to pay off for me. Unlike somebody who starts late and is only a few years from retirement where they’re going, shoot. If this is a prolonged bear market, I don’t want to be the guy putting money into this thing at this time.

Kyle Pearce: It really changes the mindset around whether a drawdown is a good thing or a bad thing, depending on how far off from that goal you really are.

Jon Orr: Yeah, and I think what is extremely important is, if you’re going to battle the emotion that comes with a drawdown, it probably means you just don’t have a strategy around how to think about the drawdown and how to strategize around it. Because they’re gonna happen, we have to have that strategy. So when you think about your second flywheel, part of it is going, how does my second flywheel strategize around drawdowns?

Jon Orr: If I am heavily invested in the index, is part of my strategy to trim at all time highs so that I build up a cash position to back up the truck when I’m at all time lows? Or when there is a drawdown, I could just layer in — I don’t know when the bottom is going to happen, but I know I’m layering in. Is that your strategy? And can you sleep better at night when you have that strategy?

Jon Orr: Or maybe you’re in a full income factory type investing and you’re living off the income and the dividends and the cash distributions from funds that are paying you a high dividend rate, and you don’t care about the capital appreciation. So on a drawdown, you’re not even looking at it because you still get the dividends every single month. And that’s an important component — you can then buy more of those funds when they’re lower, and that might be part of your strategy to continually buy at lows and trim at highs.

Jon Orr: Or maybe your strategy is, hey, I’ve got a long enough time horizon and I don’t care that this is going down right now. It’s okay. Like it shouldn’t bother me because I know that 20 years from now, I’m early in the process, so it shouldn’t bother me. But I think what, no matter what, what I’m saying is you wanna think about this and develop a set of rules or a set of strategies or a mindset to say, this is the way that we handle this type of event.

Jon Orr: And that’s an important component about building your flywheel. We often compare your financial portfolio to building a business. You’ve got your operating business, you’ve got your flywheel — it’s your second business, your second flywheel, and it’s treated like a business. Businesses have strategies around how to handle certain situations. What’s your standard operating procedure around this move? Put it down on paper, talk about it, make sure that you feel good about it, so that it’s not all of a sudden a shock when these moments happen. Because we all know they are gonna happen.

Kyle Pearce: Yeah. And I think one thing to give some actionable steps for people to really think about here as we wrap up today’s episode is having an understanding of your asset allocation, right? Whether it’s across real estate or different paper assets and so forth. And truly looking at your whole net worth — this includes, if you’re a business owner, the monetary assets on the business side or the real estate assets on the business side, not your business itself, but any of these assets in any of the buckets, non-registered, real estate that you own personally, corporately, all of those things.

Kyle Pearce: And looking at them and going, here is my asset allocation to all of these different asset classes. What percentage of the whole do they each represent? And determining what’s an appropriate asset allocation that you want to have as a goal. And then when should you maybe trim? So if the market’s doing really well, do you trim back on certain buckets in order to buy certain lagging buckets? Or on the other hand, are you just gonna be a dollar cost averager?

Kyle Pearce: And I wanna be very explicit here — this doesn’t make it good or bad, but dollar cost averaging is more for behavioral aspects of things, the behavioral economics of how we operate as humans. If I just weekly or monthly contribute, that is more about that than actually doing better by dollar cost averaging. The better point is if you waited until there’s a 5% pullback and then you had a bucket of money to put in, that’s gonna do better than dollar cost averaging over time.

Kyle Pearce: The reality though is that we don’t know when these pullbacks come. So if they go for a long period of time, you’ve got this big bucket of cash doing nothing. And therefore that can be very challenging from a mental aspect. So the more complex your strategy, the easier it is for you to potentially stray from your plan. The easier the plan, the better. It may not be optimal necessarily on paper, but the more optimized you try to become, the more challenging it becomes to work with yourself and battle in your own mind.

Kyle Pearce: But the key is setting those rules for yourself, whether it’s going to keep it simple — that’s a rule — or whether it’s going to be more complex. There’s got to be a rule there and you have to make sure that you account for how you may feel emotionally at the time. So right now we’re looking at what is really just a small little pullback in the S&P 500 so far. If I look at it, it’s about 5 to 6%. We’re back up a little today, so it’s even less. We don’t know what’s coming next. Could it go to 10%? Could it go to 20%? Or are we going to hit a new all time high in the next couple of weeks? We really don’t know.

Kyle Pearce: So the key is making sure that you have a plan for yourself so that you can stay invested in the asset classes that you want to be in and be okay with the outcome and not beat yourself up over it. Either way, make sure you’ve got a strategy. If you need some help with your strategy, if you want us to take a look at your plan holistically and give you some ideas — maybe you’re a great self-manager of your assets, maybe you’re not, maybe you need to be connected with our wealth management arm of our team — we can help you do some of those things. Regardless of who you are and where you are in the journey, we encourage you to head on over to CanadianWealthSecrets.com forward slash discovery if you’d like to book a discovery call. And of course, you can take our free assessment to determine where you’re strong and where you might focus your attention next over at CanadianWealthSecrets.com forward slash pathways.

Jon Orr: Just a reminder, content you heard here today is for informational purposes only and should not constitute any of this information as legal, tax, investment, or financial advice. Kyle Pearce is a licensed life and accident and sickness insurance agent and the president of corporate wealth management here at Canadian Wealth Secrets.

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

OPTIMIZE YOUR FINANCIAL FUTURE