Jayson Lowe explains how compound interest builds wealth over time, using the penny-doubled-daily example to show late-stage growth. He argues that RRSPs force withdrawals and taxes that interrupt compounding and permanently reduce wealth, and pitches a policy system alternative that lets you borrow against uninterrupted cash value for education, vacations, and debt while passing money tax-efficiently to heirs.
Chapters
The compounding interest being a wonder of the world because most people don't understand how it actually works. But more importantly, he or she who understands it earns it. He or she who doesn't pays it. That is critical. We transfer wealth away from our family and the opportunity to grow money. Every time we use capital, every time we lose money, we don't just lose money on the investment, we lose the opportunity to grow it. Every time we pay a fee or every time we pay taxes, that's a permanent wealth transfer that interrupts the opportunity to grow wealth.
Now, you may have seen this type of an example before. I'm going to ask you, if I wrote you a check today, right now for $1 million, do you want a $1 million check right now, or do you want a penny doubled every single day for 31 days, which one would you choose? 1 million or the penny? First things first. You can see that obviously after a few days, nothing's happening. If I look at these numbers, you can see that it's very slow in the beginning. So we have one penny on day one, two pennies on day two, four pennies on day three. Right. So it's doubling every day. So after almost all of the month has gone by, I mean, that's pretty good for a penny, we have 83,886. But look what happens in the last week. That's where in the back end. That's where the compounding really occurs. So if we look just from day 30 to day 31, again, doubles every day. This is just a representation, compound interest. And if you think about some of the vehicles that we're taught to put our money in is something like, for example, an rrsp. Everybody does the best they can with the knowledge and resources that they have. I'm not suggesting that that's a bad idea per se, but if you think about how they're structured, let's assume that the RRSP is actually growing and doing well. Well, the government is going to make you take that money out. At some point. You don't have control. If you wanted to leave the money there in growing and compounding at the end of your 71st year of life, how do you take that money out of the R? Where does the money compound the most? Well, we just saw that it's in the back end. So just as the money's really starting to compound, they're going to make you start taking it out. So that is completely counterintuitive to a wealth creation strategy. We want to take advantage of uninterrupted compounded growth. And if we have time here today, we're going to show you our YouTube channel. But our colleague Henry, he does an excellent job with some amazing content where he goes through long videos about how these registered investments actually work, how the taxation works, and all those kinds of things. So we'll make sure that you subscribe to The Bankers Vault YouTube channel. Now, for illustrative purposes, what are we talking about here? Banking needing the use of money. So what happens if we were using an alternative strategy? If we weren't using this policy system where we can access value without interrupting the growth? What happens if life happens? So we're chugging along here in our process, and let's just say, hey, hey, this is doing really good. I got $21,000. Almost on day 22. I need to access some money because I got to solve a problem. Okay, well, we just accessed money one time, but we did what's called a wealth transfer. We accessed that money, we interrupted the growth. And Jason Lowe and Caleb Williams in this book do an excellent example of framing up this problem that I'm referring to, which is wealth transfers. We transfer wealth away from our family and the opportunity to grow money. Every time we use capital, every time we lose money, we don't just lose money on the investment, we lose the opportunity to grow it. Every time we pay a fee or every time we pay taxes. That's a permanent wealth transfer that interrupts the opportunity to grow wealth. Now, on day 23, we're right back to one penny. And when we go out to 30, day 31, we only have $2.56. We actually gave up the opportunity cost to earn $10,000,716. Lost wealth gone forever, never going to get it back. And Canadians are unknowingly and unwillingly doing this every single day, just by not controlling the banking function, abdicating that responsibility and allowing someone else to perform that function in their lives. What happens to the compounding factor on the cash if you hand over the control to the banks? Well, the compounding is permanently interrupted. Someone else is harnessing that energy on that capital. They're putting that money to work. So what happens to the compounding factor on cash value? As we mentioned earlier, that wealth creation slide that I was showing you where the cash value was going up, and we're accessing those policy loans. You're growing your capital uninterrupted. So we're not just compounding money, but we're compounding it uninterrupted. That's the Real key. There's. And I'm not 100% sure if this quote is totally accurate, but either way, it's brilliant. Compound interest is the eighth wonder of the world. He who understands it earns it. He or she who understands it earns it. He or she who doesn't pays it. So I think Albert Einstein actually said compounding numbers is the eighth wonder of the world. But I think the compounding interest being a wonder of the world because most people don't understand how it actually works. But more importantly, he or she who understands it earns it. He or she who doesn't pays it. That is critical. And here's a quote from the founder of our company, Jason Lowe. Uninterrupted compounded cash value is the ninth wonder of the world. I think that's awesome. Okay, great. So think about your children or grandchildren. You're buying them Christmas gifts. You're sending them to summer camps. They're playing hockey. There's all the braces. There's all these things that happen throughout their lifetime. And one of the objectives you might have is saving for your child's education. Let's assume the child goes to post secondary. Well, you have all these other things that you need to finance. And when we're putting money aside to fund their education in an resp, as an example, no slate against that. Not saying it's a good idea per se. It's certainly not something that I take advantage of. But remember, the process of becoming your own banker is an and process. If you implement the process of becoming your own banker and you want to still participate with an resp, there's nothing stopping you from doing that. So we're saving for child's education as well. Now, where most parents and grandparents save that money for college, I already let the cat out of the bag. It's an resp. Wait, but why do they do that? Why do they put the money in the resp? It's because what they've been told to do, what they've been shown, it's what they think is available to them. So this is just a visual slide. We're not going to get into a bunch of numbers here, but this is just to give you something to think about. If this blue circle, and I think it's quite generous, it's a large circle if it comes to what we know, because there's so much to learn. But if this represents what we know, this larger green circle on the outside here is going to represent what we know. We don't know. So think about that I know that I can't speak Cantonese, I know that I can't fly a plane. But there are many things that I actually don't even know that I don't know. So this larger that should take up the whole entire room. But this larger circle represents what we don't know. We don't know. So Canadians don't know. Actually most people don't even know that they can become their own banker. They're not even aware of it. So here is what a policy on a child can be used and I own policies on my each of my children have three policies. We have 11 policies in our family banking system. So it could be used to finance daycare expenses. It could be used to finance sports and recreation activities. Like I said earlier, dance hockey, baseball, golf. What are your kids into? What are they interested in? They should try a lot of new things so they can learn what is fun. Pay off family debt. Like we looked at earlier on what if we could save money in a policy system system, pay off debt without interrupting the long term goal of being able to send the child to school, relieve stress, build family wealth as we talked about earlier by financing investments. Now I'm going to pause there for a moment because as I said this is an and process. I actually have a client who has a nice policy system that he set up for his family. But he is a person who is a savvy investor. He does a lot of private lending and a lot of private mortgages and things like that. That's what he does. He actually has a self directed resp account. So prior to meeting him, what he was doing is taking his hard earned money and he was putting it into this resp and still getting the government grants and all that. But he's achieving a really good rate of return because he knows what he's doing. He's not putting that control into someone else's hands. He's self directing it. But what we've been able to do is radically enhance what he's doing because he started a policy system on his young child and now he accesses policy loans to use as lump sums into the respondents and self direct that and still get all the added benefits. And now he just takes the money that he was already putting into the resp and he replenishes the policy loan with it. So we access money from his existing savings, set up the policy system, access a loan, continue to contribute to the RRSP and now take the money that he always saves monthly into the RRSP and pump it right back into the policy system. So it's an. And process can finance family vacations. You can finance gadgets and private tuition. I mean I actually have on the other side of my wall here outside my office, I have a beautiful home gym that my family and I just used our policy system to finance so that I can take care of my health and keep this train going. Finance college and university expenses. As we mentioned earlier, you can use it to fund the college. That's the purpose of the conversation. But the policy system will continue on after the child leaves school or if the child doesn't go to school, just continues to build momentum long into the future. So build wealth beyond college and university. There's no expiry. Right. The policy just keeps going. And then that child could be using that policy themselves to finance vehicles or participating in the family banking process. Finance a future retirement as well. So we're actually right from early on we're building a passive income strategy for the child and the parents actually are enhancing their potential passive income. As we mentioned earlier, because I own the policies on my kids, I have total and absolute control. I'm systematically transferring that wealth to the next generation in a very tax efficient manner. So the list goes on. The reason why Nelson calls this process infinite because it's only limited by one's imagination. How you can use the system to help you achieve objectives and enhance whatever you're already doing. So here is what an resp can do. College or university education.
And Henry joked with me before he said yeah, in Canada and potentially depending on which institution you go to. So if the child doesn't go to school again I direct you to the Bankers Vault YouTube channel. But we, we have here 2800 subscribers. We started about this time last year with maybe 300 or so and we have some aggressive goals. You can see that we have a ton of content here. It's all valuable. All my teammates are featured on here. But I just wanted to point out from. From. Because of this example there's a. The. The resp in Canada explained by Henry, our resident tax expert. And there's many other. You can see Henry smiling face here. Personal income taxes in Canada. What Canadian or Infinite Banking. We have a lot of content about that. But also how about maybe there's some people that are interested in crypto. So you want to learn about taxation on cryptocurrencies in Canada and RRSPs as well. I think there's multiple videos on here where Henry dives into right here. RRSP is the untold truth in Canada. So I highly encourage you to go over there and subscribe and find some video titles that speak directly to you and your objectives and just continue to consume that content and reach out to us with questions. Okay, great. A policy has all the advantages of an resp, but none of the disadvantages. That's a quote by Jason Lowe's.
