Episode 266: How Risky Is Leveraged Investing? Have Canadian Investors Been Thinking About Risk All Wrong?

Listen here on our website:

Or jump to this episode on your favourite platform:

Watch Now!

Is leverage really the risky part of wealth building — or is the bigger risk misunderstanding how, when, and why to use it?

Many Canadian business owners and investors already use leverage every day through mortgages, vehicle financing, business debt, or lines of credit — yet borrowing to invest often feels like a completely different level of risk. In this episode, Kyle and Jon unpack why some forms of debt feel “normal” while others feel dangerous, and how education, experience, asset choice, and the right support can dramatically change how risk is perceived. If you’ve ever wondered whether leveraged investing is smart strategy or unnecessary danger, this conversation will help you think more clearly about the difference.

You’ll walk away with:

• A clearer way to compare “acceptable” debt, like mortgages, with investment leverage that may create income or tax advantages.
• A practical lens for understanding objective risk versus perceived risk — and why your experience with an asset class matters.
• A better sense of when leverage may be an opportunity, when it may be a red flag, and why guidance or deeper education can help reduce costly mistakes.

Press play now to rethink leverage, risk, and opportunity through a more strategic wealth-building lens.

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 entrepreneurs and investors, building long-term wealth Canada starts with a clear Canadian wealth plan that connects leverage, risk management, investment strategies, financial education, and tax optimization into one intentional system. Whether you are comparing real estate investing Canada with real estate vs renting, exploring passive income planning, optimizing RRSP room, or weighing salary vs dividends Canada, the goal is to use smart financial planning, personal vs corporate tax planning, and corporation investment strategies to reduce investment risk while creating more financial freedom Canada. A strong plan may include RRSP optimization, tax-efficient investing, Canadian tax strategies, capital gains strategy, corporate wealth planning, business owner tax savings, corporate structure optimization, and financial systems for entrepreneurs, all supported by retirement planning tools, financial buckets, an investment bucket strategy, and financial vision setting. By focusing on financial diversification Canada, modest lifestyle wealth, early retirement strategy, passive income, estate planning Canada, legacy planning Canada, and financial independence Canada, Canadians can create wealth building strategies Canada that balance real estate, corporate assets, tax planning, and long-term investment risk management.

Transcript:

Kyle Pearce: Welcome back to another episode of the Canadian Wealth Secrets podcast. We’re going to be digging into a topic today that I think creates a lot of emotional reactions for people — especially Canadian business owners and investors. We’re talking all about leverage, and more specifically: is leverage actually risky, or have we been thinking about risk completely wrong this whole time?

Jon Orr: Almost everyone listening right now already uses some form of leverage. They just might not think of themselves that way. What we want to unpack is the riskiness factor of leverage — specifically the different forms of it and what makes each one feel more or less risky. The goal is for you to walk away going: what forms of leverage should I be thinking about, and how do I think about them in a way that actually feels less scary?

Kyle Pearce: What sparked this conversation was a call with one of our listeners who reached out about the Smith Maneuver. A lot of people in our audience are learning about ways to create tax-deductible interest. And the nuance that comes up once you dig in is that people will often hear — maybe from their financial advisor, maybe from their accountant — that borrowing to invest is risky or dangerous. But I want to start by comparing that to the other forms of leverage that already exist in our lives.

Kyle Pearce: Most Canadians who want a primary home don’t start by writing a cheque for the full amount. We finance vehicles. We use lines of credit. Incorporated business owners use leverage to fund their businesses. And yet we don’t blink at any of those. So today we’re going to unpack why some debt feels safe, acceptable, or just normal — and why other forms feel dangerous or scary — and whether that perception of risk actually lines up with reality.

Jon Orr: So what you’re getting at is: we don’t blink when we borrow to buy a home, buy a car, or pay for tuition. But if I want to borrow money to invest in real estate, in dividend-paying equities, or in the stock market — that’s where people get nervous. And I think there’s a question in there about permanence. Like, when I borrow for my home, there’s this sense that it’s forever. It’s foundational. Maybe that’s why it doesn’t feel like a bet. But when you borrow to invest in equities — even though the math says that if you borrow at 4.95% and earn an average of 7%, you come out ahead over time — people worry: what if I’m underwater? The thing is, you can be underwater on your home too.

Kyle Pearce: You absolutely can be, and often are for a while. Buying a home has a lot of costs people don’t factor in. I turned on a tap in my house in the spring and water poured out inside. Those kinds of surprises never make it into the math when people talk about how great homeownership is. Owning a home is the most socially acceptable form of leverage in Canada — it’s almost culturally expected. And I do believe in it. I like knowing my home is mine. The capital gain is protected when you sell. There’s real value there. But the 2008 US housing crisis is a reminder that people who borrowed a massive sum to live in a non-income-producing asset found themselves in a really painful situation when the market turned.

Kyle Pearce: And that’s the key distinction. Dividend-paying equities, rental properties, businesses — those create income. A primary home does not. So when someone’s home equity represents a large chunk of their net worth, that is actually a massively concentrated, risky proposition, because you need to keep earning income just to make the payments. And on top of that, the home keeps taking money from you. Then you look over at leveraged investing and somehow it’s the one with the spotlight on it, labeled risky and even gambling-adjacent. I think we need to zoom out and ask whether that narrative actually holds up.

Jon Orr: And I think the key thing to recognize is that risk is almost entirely subjective. What’s risky to you might not be risky to me. Travel is a good analogy — the more you travel, the more perspectives you gain, the more you understand about the world, the less ignorant and fearful you become of things that are unfamiliar. Education works the same way with investing. The more you learn about a specific asset class, the less risky it actually becomes for you personally.

Jon Orr: So when you ask who is leverage good for, I think the better question is: where do you want to put the leverage, and does that make sense given what you know? If I gave you $100,000 five years ago and asked where you’d put it, you’d have said real estate — because you’d put in your 10,000 hours and you knew how to make money in that world. Someone else might say a car wash business because they know that business. Someone else might say income-generating closed-end funds because they’ve studied them deeply. Alex Hormozi would say put it in the business he knows. Grant Cardone would say real estate. The asset matters less than the depth of knowledge and experience you bring to it. That’s what eliminates the subjective risk.

Kyle Pearce: That’s a great point, and it reminds me of an email exchange I had recently. I was on a discovery call with someone who has a lot of what I’d call debt equity — significant retained earnings in the corporation and real home equity. For someone in that position, creating tax-deductible interest through leveraged investing actually makes a lot of sense from a tax optimization standpoint. But when I followed up by email, this person said two things: they were nervous because the stock market was at all-time highs, and they were also nervous about real estate because the housing market might drop further.

Kyle Pearce: The contradiction there is that both concerns cancel each other out — if you’re worried the stock market is too high and you’re also worried real estate might drop further, you’ve essentially said you don’t trust either asset class right now. And what that told me was that this person hadn’t done enough “traveling” in the investment world to actually make a confident decision on their own. They don’t yet have the knowledge or experience to know when to back up the truck and when to stay cautious.

Kyle Pearce: So my response was: stay away from making the investment decision yourself for now. Keep learning. And in the meantime, if you’re going to use leverage for investment purposes — which does make sense in your situation from a tax standpoint — work with a wealth manager you know, like, and trust. Because the cost of misaligned investing, emotionally and financially, is far greater than the cost of having a professional help you navigate it.

Jon Orr: Right. And I think the takeaway there is that the antidote to perceived risk is more learning and more experience. You have two options. One is to put in the 10,000 hours yourself — which takes time and makes the passive investment quite active. The other is to tap someone on the shoulder who already has those 10,000 hours and let them help you navigate. That’s why wealth managers, portfolio managers, and investment advisors exist. You let the passive be passive, and you stay active where you should be active — which for most business owners is their own business.

Jon Orr: And I think for someone approaching retirement who has time and a chunk of capital they want to put to work — that might be the moment to actually dig in and do some of that learning. But for a business owner mid-career, the better ROI on your time is usually in your business, not learning a new asset class from scratch.

Kyle Pearce: Exactly. And the more diversified you can be across strategies and asset classes and approaches, the better and the safer things tend to be. I wouldn’t recommend someone use leverage to make their very first investment. The sequence matters. First build volume — earn more, invest more, create the tax problem. Then start looking at leverage as an optimization tool.

Kyle Pearce: A lot of people start sniffing around leveraged investing when they look around and don’t see enough liquidity to start regular investing. That’s a red flag. That’s a desperation play, not an optimization play. If you can’t afford to start investing regularly without borrowing, the first move is adjusting income or spending — not borrowing to invest.

Kyle Pearce: On the other hand, if you’re a high-income T4 employee earning $300,000 or $400,000 a year, your RRSP room is capped at around $185,000 to $190,000 of earnings. Beyond that, we need to look at other options. And I’d actually frame it as an opportunity — because the real risk is giving away 50% of your T4 income in taxes every year by choosing not to explore strategies like leveraged investing. There is learning required and we have to be responsible about it, but once you’ve done that work and layered in the education or the partnership, what looked like risk starts looking like opportunity.

Jon Orr: Right. The math on paper can look straightforward — borrow at 4.95%, earn 7% on average, come out ahead. And mathematically that’s correct. But we also have to acknowledge that objective risk exists. The key is reducing your perceived risk through learning and through the right guidance. When the market drops or things go sideways, having done the education and having someone to think things through with means you’re in a much better position to stay the course rather than panic. That’s ultimately what people worry about when they hear the word risk. It’s not the math — it’s what happens when things get hard. Education and partnerships are what get you through that.

Kyle Pearce: We’re going to have a lot more to explore in upcoming episodes — different leveraged investing decisions, the psychology behind it all. If you haven’t yet, hit subscribe. If you’re watching on YouTube, leave a comment and a thumbs up. And if you’d like to explore any of this further for your own situation, we’d love to connect on a discovery call. We’re an education-first firm — no fees, no costs, completely free planning conversations. If you decide you want to implement something and it makes sense to work with us, we’re strategically licensed across insurance and securities in different provinces. Reach out over at CanadianWealthSecrets.com forward slash discovery and we’ll see you on a call soon.

Jon Orr: Just a reminder, the content you heard here today is for informational purposes only. You should not construe any of this information as legal, tax, investment, or financial advice.

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