Episode 57: Canadian Wealth Strategies for Your Safe, Fixed Income Investments Beyond GICs and Bonds

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Are your Canadian investments earmarked as fixed income and secured assets still locked in the slow lane with GICs and bonds? Maybe you’re starting to realize that fixed rates of 5% are more like 3% to 3.5% after taxes. Ever wondered if there’s a way to navigate through the “safe” portion of your Canadian investment portfolio without having to commit the ongoing effort to ensure your return is worth the while? Stay tuned for an episode that sheds light on innovative Canadian investment strategies, reshaping the traditional approach to investments for wealth growth while also navigating the income tax implications!

In 2023, the allure of high GIC rates in Canada was hard to resist, but what if we told you there is a strategy that not only sidesteps the pitfalls of the traditional investments we tend to use for our fixed income and secured asset portion of our investment portfolio, but also maximizes your growth potential while simultaneously optimizing for income tax benefits? Today, we explore why investing in the same old bond and fixed income investments for the “safer” part of your portfolio doesn’t have to require so much time, effort, and dependence on interest rates. Specifically, we will dig into how a participating whole life policy – when properly structured for a high early cash value – can be the game-changer you’ve been searching for to offer the investment safety you are after for a portion of your portfolio, with added Canadian income tax advantages. 

  • Learn how to navigate the ups and downs of GICs and bonds in the Canadian market, avoiding the pitfalls of fluctuating rates, all while optimizing for income tax efficiency.
  • Uncover the secret to Canadian tax-efficient investing, ensuring your returns aren’t eroded by income tax implications specific to Canada.
  • Imagine a Canadian world where your safer investments enjoy tax sheltering without compromising valuable RRSP/TFSA room, allowing you to supercharge your portfolio. 

Ready to revolutionize your Canadian approach to investing and income tax planning? Tune in now to discover the PAR Whole Life strategy, that not only aligns with your investment goals but also strategically navigates the nuances of income tax in Canada. Don’t miss out – hit play and take control of your Canadian wealth journey!


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00:00:00:02 – 00:00:28:24
Kyle Pearce
Are some of your Canadian investments still locked in the slow lane with GICs and Bonds? And on the way out, you’re getting hit with high income tax bills. Ever wonder if there’s a way to navigate some of these challenges while still keeping your assets safe and secure? Stay tuned for an episode that sheds light on innovative Canadian investment strategies, reshaping the traditional approach to income tax and wealth growth.

00:00:29:01 – 00:01:05:16
Jon Orr
Stick with us and you’ll learn how to navigate the ups and downs of the GFC and bond market and avoid those common pitfalls of fluctuating rates and all while optimizing for income tax efficiency. We’ll also uncover the secret to Canadian tax efficient investing ensure your returns aren’t eroded by those pesky income tax implications specific to Canada. And finally, you’re going to imagine a Canadian world where you’re safer investments, enjoy tax sheltering without compromising valuable RRSP and TFSA room, allow you to.

00:01:05:16 – 00:01:25:18
Kyle Pearce
Supercharge your portfolio. All right, my friends, let’s get ready to rock and roll. Here we go.

00:01:25:20 – 00:01:45:03
Kyle Pearce
Welcome to the Canadian Wealth Secrets Podcast with Kyle Pearce and Jon Orr, where we help high net income individuals grow their wealth into a legacy that lasts generations through hidden investment and tax secrets. Your financial advisors won’t believe our true.

00:01:45:06 – 00:02:04:17
Jon Orr
Welcoming folks to another episode of the Canadian Wealth Secrets Podcast. We’re formerly the Canadian Wealth Secrets podcast, so if you were just listening to that, you’re like, Wait a minute, am I in the right spot? You are in the right spot. We’ve changed the title just recently and I think it’s a little bit more appropriate to what we’ve been discussing whole time anyway.

00:02:04:18 – 00:02:36:06
Jon Orr
Specifically, we are based out of Canada, so we are talking all about building our wealth through various means. We first started talking about real estate investment, but we talk about so many different ways to build our wealth. We thought it was best to change the name to the Canadian Wealth Secrets podcast. So here we are. Kyle Let’s get into it because I want to talk about all about GICs and Bonds and whether we should be investing or safeguarding our money by putting them into these vehicles or are there other better alternatives, especially for us high income net worth people?

00:02:36:08 – 00:03:05:01
Kyle Pearce
Yes, absolutely. And when we dig into this one, this actually was based on a conversation we’re having recently. A lot of people, as you can imagine, as we record this, it’s the beginning of 2020 for the Fed in the U.S. and the bank of Canada here have decided to hold rates a little bit longer, which means we’re dealing with what many would call very high interest rates comparatively to what they’ve experienced over these last 5 to 10 years.

00:03:05:03 – 00:03:41:19
Kyle Pearce
But historically, they’re not that high, but they are higher than typical. And what that’s done is that’s actually elevated the bond markets. And in turn, some of the GI C’s that are available for those who are unaware, if you’re a U.S. listener and you’re now listening to this new Canadian Wealth Secrets podcast, glasses are like, are investment certificates that they’re like CDs in the U.S. but here they’re guaranteed investment certificates and they’re going to give you a specific specified fixed income over a period of time.

00:03:41:19 – 00:04:11:18
Kyle Pearce
It could be six months, it could be 12 months, it could be five years. They really do vary. And obviously, when interest rates are higher like they are now, people start to look at these fixed assets as a great, safe place to store their wealth. And let’s be honest, when you look at any sort of investing book, when it comes to the fundamentals, you’re going to hear people talking about like a split between stocks and bonds, right?

00:04:11:20 – 00:04:39:13
Kyle Pearce
Bonds being those more fixed income, those more secured assets, or at least they’re supposed to act that way if you actually buy bonds, we can go into a completely different rabbit hole around how bonds aren’t always safe. However, what we’re really digging into here is the actual interest that’s being generated from these secured assets. So when we look here as Canadians into gases, they’re definitely attractive because they’re pretty basic.

00:04:39:13 – 00:05:05:11
Kyle Pearce
They’re pretty easy, right? I’m going to hand over a specific amount of money, Right. So, John, you’re the bank. I’m going to hand over $100 and you’re going to give me. And right now, as of this recording, we for example, here at Windsor Family Credit Union, we’ll put the link to these rates in our show notes. Windsor Family Credit Union, I found, was offering some of the highest GSE rates, but noting that they were like specials, almost like get in the door specials.

00:05:05:13 – 00:05:38:05
Kyle Pearce
The highest I see here for a one year is 5.9%. So you’re looking at that going like, Wow, that’s amazing. Five year is 4.5%. Now, some people would be like, but wait a second, I thought rates are high, mortgage rates are around 6%. Why can’t I get my five year GSE rate to be at 6%? Well, what this actually means as we look further into the future, what it’s suggesting is that the bond market is telling us that they’re anticipating that rates will actually start to decrease over the next five years.

00:05:38:05 – 00:06:04:17
Kyle Pearce
So that’s what that saying. Does it mean it’s going to happen? No, But as investors, banks are investors. They’re looking at this and going, okay, how can we bring as much money in the door? And then how can we then take that money and lend it back out to other people at a higher rate? So what they’re saying right now is they’re like, listen, if you give me $100 for one year in one year’s time, I’m going to return your $100.

00:06:04:17 – 00:06:28:12
Kyle Pearce
But I’m also going to give you this additional interest, which they have posted here as 5.9%. So you’re going to get $5.90, right? You could scale this up if it’s $100,000 now you’re getting 50 $900 back. Now, that seems pretty awesome because it feels pretty secure, right? You’re like handing over your money to the bank just like everybody is doing each and every week.

00:06:28:12 – 00:07:01:22
Kyle Pearce
Right. If you’re getting a paycheck, it’s going into the bank rate. Everyone’s putting them into the bank. So everyone’s trusting that the bank is going to be there at the end of the year or the end of the five years to get their money back. However, we’re going to discuss here and unpack a little bit around how maybe GI C’s aren’t necessarily the best fit for that chunk of your investment nest egg that you’re hoping to keep in a secured sort of income generating asset like a G.

00:07:01:24 – 00:07:27:04
Jon Orr
All right, Kyle, So let’s dive in here a little bit, because I think before we get into the nuts and bolts of deciding whether a GSE is the best option for this chunk of money and whether there are other options, let’s first kind of talk about comparing GEICO is to start is thinking about our portfolios to other vehicles as well, because I think what we’re saying here is that we’re going, Gee, I see, I’m thinking, I want this to be secured.

00:07:27:04 – 00:07:42:00
Jon Orr
It’s guaranteed. This is not money that I’m playing with. This is money that I want to secure for the future. So maybe it’s money that I want to put away for a long time. It’s part of my retire mint. Or maybe it’s this money that I don’t need to touch for a while. It’s not money that I’m willing to put in the stock market.

00:07:42:00 – 00:08:07:14
Jon Orr
Let’s say that like you think about, there’s an article that we pulled from MSNBC. We’ll put that link in the show notes as well. The talking about what’s the amount of money we should be investing anyway? How much should we be putting over in GICs or how much should we be putting in the stock market? There’s this 5015 five rule which helps you think about how much you should be putting away 50% of your income is covering your expenses.

00:08:07:14 – 00:08:28:10
Jon Orr
Like, Hey, I’m not going to touch any of that. I got to pay all my bills. I’ve got this 15 part of the rule, which is like 15% of my money, should be going towards investing and that can be your pension, but that could also be your stock portfolio, could be your GICs, and it could be other forms of of investing in your RRSPs or tax free savings accounts here in Canada.

00:08:28:12 – 00:08:49:05
Jon Orr
The five part, you got your 5% savings. You’ve got some money sitting over here. We talked about an emergency fund a while ago. Different ways, ideas about that emergency fund that could be part of that that emergency fund as well, even though we did talk about alternate, smarter ways to use that money for your emergency fund. And then we got this 30% is discretionary spending in there as well.

00:08:49:05 – 00:09:09:09
Jon Orr
So when you think about that 15% of in your investing and you’re thinking about how much that we should be putting in, should we putting all of that in stocks, what’s the balance between stocks and bonds? How what’s the going kind of consensus here? Because I know a lot of people I’ve looked at target date funds for this because they help you figure this problem out.

00:09:09:09 – 00:09:33:03
Jon Orr
Right. It’s like if I want to retire in this year, a target date fund can help you rebalance that split between stocks, equities and bonds so that by the time if you’re early, if you’re far away from your target, you’re more heavily into stocks, the high returns. But then as you get closer, it’s rebalancing towards the safer part of the JCS and the bonds and that that area.

00:09:33:03 – 00:09:40:17
Jon Orr
So automatically does a little rebalance for you if you go with a target date fund. But if you’re not, if you’re managing your own, you’ve got to figure this out.

00:09:40:19 – 00:10:09:00
Kyle Pearce
Yeah, absolutely. And even just to push on this 5055 rule, it’s a really helpful rule, I think, for those who are earning enough income. So a lot of people listening to this podcast are likely earning enough where 15% is a significant amount. However, for those who are in lower income brackets, 15% in investing, unfortunately just isn’t enough for them to actually create sort of that nest egg that they’re going to require for retirement.

00:10:09:00 – 00:10:38:23
Kyle Pearce
For those people, though, that are earning 100,000 200,000 and beyond a year, 15% is probably more than enough. But I would also argue that I would encourage that that 15% actually grows with your income, meaning, hey, if I’m earning 200,000 a year to 5300 and more a year, that actually you don’t want to just commit to 15%, you actually want to be committing to much, much more because otherwise we’re going to let that lifestyle creep kind of take over, right.

00:10:38:23 – 00:11:01:20
Kyle Pearce
That inflation. And the problem is, if you’re only doing 15%, even if you’re a high net worth individual or high income individual, the problem is, is that you’re getting used to spending a significant amount and then you’ve got this little nest egg that’s supposed to take you through retirement. You’re going to actually get smacked across the face with having to actually reduce your spending significantly.

00:11:01:20 – 00:11:29:05
Kyle Pearce
So with the more money you earn, I would argue that the bigger that amount to be invested we should be focusing on. So just food for thought for those who are listening and or going, holy smokes, I was doing 15%, but maybe that’s not enough given my high salary or my high income across the household. When it comes to the actual ratio or the split, there are a couple will call them like rules of thumb.

00:11:29:07 – 00:11:49:11
Kyle Pearce
But mostly what people tend to do is they tend to say like, listen, when you’re younger, you could be more risk tolerant and therefore you have more time in the market and you could have a higher weighted stock portfolio. And some have even thrown out this idea of like, Hey, take 100, let’s pretend that we’re all going to live to 100.

00:11:49:17 – 00:12:09:00
Kyle Pearce
Let’s subtract our age from that. So if you’re 40 years old, what they’re suggesting is you’re going to have a 6040 split of stocks is 60, and then bonds and other sort of fixed income. I see fixed bonds aren’t necessarily I mean, it’s a fixed income, but the values go up and down depending on how long you hold them for.

00:12:09:02 – 00:12:36:09
Kyle Pearce
That would be 40%. If you’re 20 years old, you could be 100% invested in stock or sorry, 80% invested in stocks and 20% invested in more secured fixed types of assets. Now, Warren Buffett, who tends to know a thing or two, he is sort of an advocate of a 9010 split, regardless of your age, simply based on the math.

00:12:36:09 – 00:12:58:05
Kyle Pearce
So we’re going to put a bunch of links in the show notes for you to go down that rabbit hole. But ultimately, he’s like, listen, throw 90% of your money into low fee stock index funds and it can be S&P, It can be different parts of the world. He’s a big advocate for U.S. markets and then 10% into short term government bonds.

00:12:58:05 – 00:13:31:12
Kyle Pearce
So regardless of how you go, you’re kind of looking at if we use the 100 minus your age or whether you have Buffett strategy, basically you’re looking at between 10% and maybe even upwards of 40 or 50% of your investments are, quote unquote, suggested to be in non stock or non growth type assets and should be into things that are more producing some sort of fixed income yield like short term government bonds.

00:13:31:12 – 00:13:56:21
Kyle Pearce
GI C’s would be bank CDs. Right. And really what we want to talk to you about today is not about the stock part of your portfolio. We want to talk to you about that 10 to 40 or 50%, depending on your age and what you think is best for you, where you might consider putting some of those funds in order to get a more predictable outcome.

00:13:56:23 – 00:14:16:09
Kyle Pearce
And ultimately really just almost a set and forget sort of strategy where you can still feel good that you have a ratio that makes sense based on either what Warren sang or what this 100 minus the age rule is saying and what many other investment advisors are saying from across the board.

00:14:16:11 – 00:14:43:11
Jon Orr
Yeah, so we think about going down that route and going, let’s focus on those guesses. And if we start with is that the best place for our money? So we often want to take in the purpose of our podcast is to think about how do we can we save tax? I think Kyle, you did some number crunching. It’s like if you’re literally have a two teacher income household, you’re like in the top 2% of families across Canada, you’re considered a high income family.

00:14:43:11 – 00:15:03:21
Jon Orr
So it’s like if you’re making more than that, then you’re also a high income earner in a higher income family and in net worth. So it’s like when we think about that, when we think of where high net worth families or individuals we want to go, well, it’s actually easy. Instead of making more money, if I want to make more money, it’s actually easier right now to save on tax, right?

00:15:03:21 – 00:15:20:08
Jon Orr
So it’s like that’s the purpose of what we want to talk about as much as we can is like, how can we save tax? So that’s always a lens we put on any sort of investment or any sort of discussion about money where we can put it. So think about this. If I’ve got gi C that I want to put my money into a GI C first if I go unregistered account.

00:15:20:08 – 00:15:42:04
Jon Orr
So I’m not talking about tax free savings account or hours. P You’re putting after tax dollars into those and then that’s going to grow in those GICs, but then you’re going to pay tax on the interest in the amount that you make at the end of that. Right. So you’re putting our after tax dollars, you’re at your probably your highest income tax bracket right now.

00:15:42:10 – 00:16:01:14
Jon Orr
It’s going to go in there. You’re growing, let’s say it’s at that 5.9%. That money’s going to come out, that $5.90 that’s coming out, like you said before. How are you going to pay tax on that capital gain? The other way is like if you put it in registered bonds, right? So if I go with RRSPs or tax free savings account, then depending on which where I put the tax in.

00:16:01:14 – 00:16:17:14
Jon Orr
So I put the tax do I pay the tax because I’m putting in after tax dollars in RRSP. I get that save on that tax. I get that tax rebate right there. Now there’s a cap there. I can’t just put all my money in there. I can’t just put out I have to maintain the caps. Same with the tax free savings account.

00:16:17:16 – 00:16:34:16
Jon Orr
I get to put it inside that container over there. It’ll grow and I don’t pay tax on that gain instead. But I used after tax dollars, so I did pay tax summers. Most people think I think Kyle is like, you can’t get away from it, right? It’s going in there and you’re paying tax either front or at the end.

00:16:34:18 – 00:16:38:04
Jon Orr
But that’s where we want to talk to you about, like maybe a better alternative.

00:16:38:06 – 00:16:57:02
Kyle Pearce
Absolutely. And I think it’s really important. I want to really, really rubber stamp this idea of paying more attention to how we are being taxed is really important. And that is, like you said, John, it’s like a lot of people have sort of written off this idea that they’re just like, well, it is what it is and I’m just going to let it happen.

00:16:57:07 – 00:17:33:02
Kyle Pearce
And the reality is, is that that is it’s a poor approach because ultimately your decisions that you make on where you make investments, what investments you make, and the implication it’s going to have on you is it really does matter. So, for example, one of the challenges some people might be like, well, listen, I’m going to put my 10 to 40% of my portfolio in these safe income producing bond like assets, and I’m going to put them in my RRSP or in my tax free savings account so that the interest earned off of them is tax free.

00:17:33:04 – 00:17:53:07
Kyle Pearce
Amazing. Like, that’s awesome, but it’s such a low amount that you’re not saving that much money. What I’m looking at is I’m going, I want those registered accounts to be where I see the most growth, especially my tax free savings account. Right? Because the money’s already been taxed that I’m putting into it. It’s going to grow tax free and it comes out tax free.

00:17:53:07 – 00:18:36:12
Kyle Pearce
So I want to make sure that I save my tax free savings account from my more aggressive investments, whatever that looks like for you. Maybe more aggressive means index funds in the S&P 500. Or maybe it’s like Bitcoin ETFs. I don’t know. That’s totally up to you. But what I think we have to be really cautious about is imagine a world where it didn’t have to even commit any of my RRSP room or my tax free savings account room to accomplishing the task of filling that 10 to 40 or 50% bucket of those secured or fixed income type assets that are supposed to be safer and just split off a dividend or interest, but are

00:18:36:12 – 00:19:04:20
Kyle Pearce
in turn going to be taxed if they are outside of those vehicles. Like imagine I can accomplish the same result somewhere else and have additional safety. And I think if we just reflect on this and say, well, if I am, let’s say getting a 5% interest rate and I’m being taxed at 30%, then my 5% interest rate is only going to be after tax three and a half percent.

00:19:05:00 – 00:19:23:23
Kyle Pearce
That’s not very good at all. And I would argue that, gee, I see rates go up and down so much that it’s like, well, what’s your plan after rates start coming down again? Right. So, I mean, we look at the five year pricing and it’s suggesting that over the longer term we’re going to start to see rates coming down.

00:19:23:23 – 00:19:47:11
Kyle Pearce
And a lot of economists would agree with that. That end to 2024, we’ll probably see some rates coming down. If we look historically, rates usually spike down as well. So they don’t just slowly come down. They usually come down aggressively because what happens is, is that we’re looking at trailing data. I say we the Bank of Canada, is looking at trailing data and they’re like, oh, there’s still inflation, there’s still inflation, there’s still inflation.

00:19:47:11 – 00:20:07:14
Kyle Pearce
Then they reach the goal they hold for a bit, which we have been holding. And then what they find out is they’ve actually gone too far, right? So the economy starts to break and then what do they do? They pull the rug on interest rates and interest rates start to flop down. So you might have got lucky and put some money into GICs now to get some of those returns.

00:20:07:19 – 00:20:32:02
Kyle Pearce
But when that five year GRC comes due where rates are going to be, then are we going to be looking at a 3% GRC rate? Are we going to be looking at a two and a half percent GRC rate? And is that what you were really after? And I would argue that that just feels like a lot of work, despite the fact that it is going to safely hold your cash and allow it to grow a little bit to try to keep up with inflation.

00:20:32:04 – 00:20:53:21
Kyle Pearce
Let’s be honest, a 5% interest rate, especially after tax when it’s coming out at three and a half percent, that is below the historical average. Over the past, I think it’s 40 to 50 years. The historical average inflation rates around 4% in Canada, that’s typically where it’s at. We want to be at two, but typically we’re kind of like hanging around there.

00:20:54:00 – 00:21:33:09
Kyle Pearce
You’re not even keeping up with inflation here. So sure your money safe, but it’s still eroding. It’s just eroding at a smaller amount. Imagine if we could take some of these funds that you were going to put into something super safe. We could do that as well, save the room in our PS and our tax free savings account and accomplish that task through another means that also produces not only a tax benefit but also some other we’ll call them goodies, the cherries on top, in order to ensure that we’re able to maximize what happens to this particular chunk of our investment portfolio.

00:21:33:11 – 00:21:43:09
Jon Orr
Yeah. So, Kyle, what would you say is that solution Like, I think we can go down that path right now and go, Hey, let’s look at that scenario. Let’s talk about what we should be doing instead.

00:21:43:11 – 00:22:15:19
Kyle Pearce
Yeah, absolutely. And I want to clarify before we get it, and I’m going to essentially just say the conversation I had recently with someone, someone that’s actually close to me and my family. We were having the discussion. They said, we’re thinking about putting some money in GICs. The one thing I want to really be clear on here is that if your goal for buying a GRC is so that your money can sit until you need to use all of it in a year, a two, three, whatever it is, maybe it’s a car purchase or maybe it’s something else, and you don’t anticipate to have that money afterwards.

00:22:15:19 – 00:22:33:20
Kyle Pearce
Like you’re going to take it back, take the interest, and then you’re going to be putting it out there, you’re going to deploy it into something. Then this might not make sense for you, but I would argue this particular individual goal was like, I have this big chunk of cash that I want to know is not going to go down in value.

00:22:34:00 – 00:22:52:17
Kyle Pearce
I also don’t want it to just sit in a bank account doing nothing. So for some of you are listening and have listened to multiple episodes, you might know where I’m going with this and you might start thinking, Wait a second, what did Kyle and John say we might do with that money that sits in a checking account as our emergency fund, for example?

00:22:52:19 – 00:23:21:09
Kyle Pearce
And if that is you if you’re thinking that you’re absolutely right for that type of person who’s like, I’m just want to get this consistent return in a safe manner, I might consider taking a portion of that chunk from my investment portfolio that I want to just get consistent returns that income like returns. I might consider putting that into a participating whole life policy.

00:23:21:11 – 00:23:57:04
Kyle Pearce
So for me, I don’t own any low interest generating assets like GI, CS or anything like that. Instead, what I do is I actually put that same amount of money into a participating whole life policy to do the same job. And the reason I do that is because over the long term I know a few things. One thing I know for sure is that the companies that we’re using are insurance companies that have been around for 50 some 100 years here in Canada and have never, ever gone out of business.

00:23:57:04 – 00:24:18:16
Kyle Pearce
Right. So there’s that one thing that’s the same sort of thing we have with our banks. We know that our banks are strong here in Canada, so it’s not really a concern of mine. I know some people are fearmongers. I’m not. But I’ve got this insurance company that’s going to take this money and they’re going to contractually guarantee that my money will not go down in value over time.

00:24:18:16 – 00:24:34:10
Kyle Pearce
Now, some people like, wait a second, what if I cancel my policy in the first year? It would go down in value. And the answer is yes. Just like if you wanted to go to the bank and you wanted to get your money back in year one, when it’s a five year GRC, you’ve got yourself in a pickle.

00:24:34:10 – 00:24:55:13
Kyle Pearce
They’re going to say, Well, some of them are going to say, Sorry, we don’t have it, it’s invested, you’re not getting it back yet. Other people, you know, other scenarios, they might say, okay, here’s your money back. You’re not getting any interest. Me, There’s a penalty, whatever it is. To be honest, I don’t I’ve never bought a gas, so I don’t even know what that’s going to look like or sound like because I do this strategy instead.

00:24:55:15 – 00:25:19:03
Kyle Pearce
And when I put it over here into this policy, this policy, I know that if I stick with this policy and I let this thing go as we enter the year, six years, seven and beyond, the average growth of the value of cash that’s building up in this policy is going to be in the 4 to 5% ish range.

00:25:19:05 – 00:25:47:19
Kyle Pearce
And the beauty is, is that it’s all happening completely tax sheltered. So it’s like I’ve created my own little tax sheltered little place to put this money instead of me taking that same money, putting it into my RSP or putting it into my tax free savings account, allowing that to take up room in there just so that I can protect myself from the tax on 5% interest on the GCS right now.

00:25:47:19 – 00:26:08:18
Kyle Pearce
The other thing that I think is really important for us to think about is, again, we don’t know where GRC rates are going to be in five years from now, Right? The beauty of this whole life policy as a strategy for those fixed secured assets that you’re looking to grow at a low rate of return, but make sure that that never goes backwards.

00:26:08:20 – 00:26:27:10
Kyle Pearce
If I do that with GI C’s, I don’t know what those rates are going to be over time, whereas over here I can’t guarantee what the rates are going to be over time. But I can look back to the history and I can see that consistently. You’re getting pretty significant returns and all tax free.

00:26:27:15 – 00:26:46:16
Jon Orr
Yeah, totally. And then not to mention some of the other benefits we’ve talked about in past episodes is that as that cash value grows year to year, each year, you have access to that, right? You can say, You know what, I need to go use that money or go make this purchase, or I can invest in this real estate investment, or I could put it in the stock market over here if I choose to.

00:26:46:17 – 00:27:06:16
Jon Orr
You can supercharge some of these things. Like in our past episodes we’ve talked about. Now you’re not going and taking the money physically back. You are borrowing against that collateral and you’re getting a policy loan and you can go off and do that. So we’ve talked about that many times. It’s almost like you have access to it, but you do get to utilize the cash value that’s been building up in there.

00:27:06:16 – 00:27:25:21
Jon Orr
Whereas in a GI, see, you can’t borrow against that. You can’t go to the bank and say, Hey, I want to borrow against my GHC. They’re not going to allow you to do that. The other thing it depending on how long you’ve had your policy rolling, you could be in the accumulation stage, but also you could be in the withdrawal stage where it’s like you get to a point where this money is grown over time and you’re like, You know what?

00:27:25:21 – 00:27:46:01
Jon Orr
I need this money to live now. And now we can start withdrawing again against the value of that cash value policy loan, taking it out, and then the death benefit. The other benefit there, there’s a death benefit. And by the time let’s say you continually withdraw, as long as you’ve done the number crunching. Right. And this is why you have an advisor like Kyle here to kind of like guide you through that process.

00:27:46:03 – 00:28:01:21
Jon Orr
You’re going to figure out what’s the right amount so that you never run out of money and then the death benefit can cover that loan balance and you get to utilize the money tax free. That’s another benefit of doing this strategy versus every five years putting your money in a different. Yes.

00:28:01:23 – 00:28:26:23
Kyle Pearce
I love it. And that’s a really great point there, John, something that I think is important for people to recognize. So for this particular individual from my family who were discussing this idea of like this amount of money they wanted to put in GICs, we sort of discuss like, well, what’s your plan for this money? And really for them, it’s just money we have here and we just want to have a certain amount of it that we know is completely safe and sort of neutral to market volatility.

00:28:27:04 – 00:28:47:01
Kyle Pearce
So I’m like, totally makes sense. So let’s create a plan for you where this can do what it is that you’re looking to do. And then ultimately, when it is, when the time comes where you may need it, because it really this couple in my family was saying they don’t need the money right now, but they want to make sure that they have that money if and when they need it.

00:28:47:01 – 00:29:05:07
Kyle Pearce
Right. So when it gets to that point where maybe they need this money, which is often the distance, they want to make sure that it’s there and that it hasn’t been inflated away. Right. It hasn’t depreciated in value, meaning inflation’s gotten so high where that amount of money can’t buy as much as it could buy in today’s dollars.

00:29:05:09 – 00:29:25:03
Kyle Pearce
So this is an opportunity for them to go, okay, we’re going to grow this thing. And then ultimately, when you get to a specific point, one of the beauties is the way that you would design a policy like this would likely get you to what we all call a break even point at about year five or into year six.

00:29:25:03 – 00:29:49:12
Kyle Pearce
And what I mean by that is if you decided at that point that you were like, I don’t want to borrow against it, like John, I just can’t wrap my head around borrowing against my own money. They just can’t figure it out. And I’m like, That’s totally fine. Any time after year five, they’re able to cancel the policy and they will get money back as well as any money that they’ve earned in cash value.

00:29:49:12 – 00:30:16:23
Kyle Pearce
The only difference is it now becomes taxable again, right? That money that you’ve earned on the policy. But it’s always an option for you. I think that’s something that holds a lot of people back. They feel like they’re. Meanwhile, over here we have our RRSPs, which literally is jail for your money, right until you retire. It’s like jail for your money over here, we have a whole life policy where it’s like jail for your money if you’re unwilling to borrow against it in the first five years.

00:30:16:23 – 00:30:37:12
Kyle Pearce
That’s like big of a commitment that you really need to make, and you always have that exit card available to you If you cancel in year one, yes, you are losing money. It’s not a good strategy for you. Do not do that. However, what we try to encourage people to have is even in year one, you can actually borrow against it.

00:30:37:14 – 00:31:00:15
Kyle Pearce
If you need to or wanted to. Maybe there’s an investment there, maybe there’s an emergency that came up. It’s still accessible to you. And like I say, at any point, technically you could surrender the policy. And as long as you’re beyond your five year six mark, you’re going to be ahead of the game. And I’ll be honest. So if you make it to that year five or six, it’s like those 3%.

00:31:00:15 – 00:31:22:15
Kyle Pearce
Then it becomes an average of 4% to between four and 5% per year. Compounding growth each year. And that’s on the early years of the policy as well. So it erases all of the early, what we call negativity that’s happening some people think it’s like, well, no, I’m never going to get that money back in year one. It’s like, yes, you will.

00:31:22:21 – 00:31:44:18
Kyle Pearce
You’re going to get an average compounding rate that’s going to be between that 4 to 5%, typically based on all of the projection or all of the past history. And you can always loan against it and for me, all of my policies, my plan is I get to a point where I’m then at a place where I don’t put any more money into the policy.

00:31:44:18 – 00:32:04:18
Kyle Pearce
I let it self-fund itself and I slowly borrow against it and use it as additional retirement income. Even though let’s be honest, John, you and I were never retiring. There’s no such thing. However, we are going to be using those policies to help fund our lifestyle in the future for sure.

00:32:04:18 – 00:32:34:23
Jon Orr
For sure. Folks, we hope you’ve got some takeaways here as we’ve kind of navigated a few different areas. We wanted to help you learn how to navigate those ups and downs, the GRC and bonds in the Canadian market and avoid some of the pitfalls. Think about rates. Think about optimizing for tax efficiency. We hope we did that. We also wanted to uncover Canadian tax efficient investing advice here for you, but also to kind of talk about what to look at for tax sheltering without firm investments, but also without compromising your RSP in tax free savings account room.

00:32:35:00 – 00:33:01:21
Jon Orr
We hope you provided some of that value here for you. And if you are considering if you’re thinking of like, you know what, guys, I think the whole life policy does make a lot of sense, just like we think it makes a lot of sense. You can always reach out to us at Canadian Wealth secrets dot com forward slash discovery that’s Canadian wealth secrets dot com for access discovery and book a meeting with us and we can walk you through your options and whether that makes the best sense for you.

00:33:01:23 – 00:33:37:17
Kyle Pearce
Awesome my friends. Hey as always links and resources are up on that website. Like John just said Canadian wealth secrets dot com and hey don’t be a stranger. Reach out to us leave us a rating and review and reach out to us on social and we will see you in our next episode of Canadian Wealth Secrets.

00:33:37:19 – 00:33:49:09
Jon Orr
All right, folks, this is reminder the information you heard here today is for informational purposes only, you should not construe any such information or other material as legal tax, investment, financial or other advice.

00:33:49:11 – 00:34:10:24
Kyle Pearce
John is a mortgage agent with a B, r X mortgage. That’s bricks mortgage license number m23006803. And Kyle is a licensed life and accident and sickness insurance agent and financial advisor with the pan Corp. team, which includes corporate advisors and pan financial.

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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