How to Fund Your Investment

You can't get a better rate of return investing into anything without first controlling the financing function of that transaction. Everything that we do in life financially is a measure against how someone else is doing. Everything is comparable, right? If you're doing good, then compare to what? If you're not doing good, then compare to what? Everything is comparable and so is the process of banking. We have to understand that the problem is not the problem. The problem is how we think about the problem. The problem is not the 20% rate of return. The problem is how do we go about funding the investment for that 20% rate of return. What can we change in terms of the process or way we fund the investment?

What I want to go through and walk you through is actually one of our clients. His name is Corey. So let me just kind of walk you through Corey and I want you to meet Corey. And Corey, he's actually a full time investor. He's 38 and he also gets really excited to earn a rate of return of 20%. So whenever he has an objective to, to deploy and invest his money, he's always looking to get the maximum rate of return. In his case, he gets really excited when the rate of return is over 20%. So when he met with me, I used 20% as an example to show what it would look like if all he did was just change how he was going about investing his money in the same investment. Which is exactly what I'm going to be sharing with all of you today. Now Corey, when he came to the session, just like how you are attending this session today after reading Nelson's book.

He was very honest and he said to me, hey Henry, I understand the long term benefits of ibc and I see that I've got to capitalize my system. And you know, I love it, I want to do it. But I'm really struggling with understanding the short term benefits because I see that once I put my premium deposit it in, even though I can access the money immediately, I don't have access to the full amount dollar for dollar in the first few years because I have to capitalize the banking system and build it up to a point where I can do all the wonderful things that you're sharing now. I told Corey, I understand you probably feel that since you aren't getting full access to your money that you've deposited. It kind of feels like a compromise to you. So I said to Corey, well, one of the things I do want to share is that there's no such thing as instant gratification. Some things that are worth considering are going to take time. So I said to him, well, would it be okay if I share with you that despite you not getting full access to your money in your first year, you're still going to come out ahead? And of course, he's like, for sure, help me understand that. So the example you're going to see here is Corey's own example, which the objective for Corey is to invest money. So let's meet Corey's objective. Now, before we dive into it, we have to understand that the problem is not the problem. The problem is how we think about the problem. The problem is not the 20% rate of return. The problem is how do we go about funding the investment for that 20% rate of return? What can we change in terms of the process or way we fund the investment? So let's improve the outcome by not focusing on what you're going to buy in life going forward, but instead let's focus on how you are going to go about buying it going forward. Now, I know we've heard this, that everything that we do in life financially is a measure against how someone else is doing. Everything is comparable, right? If you're doing good, then compared to what? If you're not doing good, then compared to what? Everything is comparable. And so is the process of banking that's also comparable. So let's see how we can get Corey a better rate of return by changing his process of investing. And we're not going to change his process to accomplish his objective. And what is his objective? Well, his objective is getting buying that asset to produce the 20% rate of return. Now, the methods that Corey has been used to doing, and you may also be doing this presently, is that Corey uses his own cash, which is, you know, method one. So if you find something which is worth investing to earn 20%, then you pile up that cash in someone else's bank. And for him, he wants to use that cash to accomplish the objective and purchase the investing. The other way for Corey to fund that investment is to use other people's money, opm, otherwise known. And the way that he uses that is actually through a heloc, because Corey has a principal residence and he also has access to money through his heloc. When he accesses the helocopter at someone else's bank, they're going to charge him 3%. So these are the two methods that he's been used to using. So let's see what he's doing presently. And we're going to compare these two methods with what we can be doing going forward today, with comparing it to when we are using the process of becoming your own bank. And now once you see the comparison, and you know it'll connect with you, and you'll most likely see the benefits of doing it this way. So let's look at method one. When it comes to method one, the math and concept is fairly straightforward. Let's use that $20,000 of his own money as the example. He takes the 20,000, he invests it into something that's going to produce the rate of return of 20% over the year. He's going to earn $4,000 in that investment. It's relatively straightforward. Now, let's look at the second method. The second method is going to take $20,000, borrowing that money from the bank, from his HELOC, from his principal residence, which is the collateral, and now he's using someone else's money, and in that case is the HELOC. So he uses that money and he invests the $20,000 to get the same $4,000 return. But since he's using the bank's money, he has to pay the bank back interest, which is that 3% or $600. So his net gain from this transaction is $3,400. Well, now, whether he selects method one, which is using his cash, or he chooses method two, which is someone else's money, let's agree on one thing. He did pretty good, right? And that's what he's normally accustomed to when he's deploying his money for an investment.

So I said to him, let's make it even better for you by changing your process. And again, I'm not going to change the objective of the 20% rate of return. I'm also not going to change his use of cash flow of that $20,000. I'm just going to change the way he funded the investment. So let's dive into this example. Let's use ibc, and let's see how using IBC can change and make things better for him. So by using the $21,000 of his own money, he flows this money into his banking system to start capitalizing it. And that $20,000 is that amount of money that goes in as the form of premium. Now, immediately, at his age, where the policy is designed based on his objective, he's going to get what's a death benefit of $400,000. And I just want to stop it from here for now. When you kind of, if we compare it immediately, if we look at method one, when he took the $20,000 to buy the investment, he accomplished the objective of buying the investment, but he has no death benefit. I mean, in case something happens to him, let's say he gets hit by a bus tomorrow, his family's going to get $20,000 plus the profit of 4,000 from that investment return. And that's all they are.

When using the IBC way, since he takes his 20,000 and he starts a properly designed policy, he immediately creates protection for his family of $400,000 as a tax free starting death benefit. Meaning upon his death, his family is actually going to get 20 times the money that he's first deposited. And from being an authorized infinite banking practitioner using the way we design these policies, that death benefit is actually going to increase every year going forward. And again, that's just when he passes away. But let's talk about the part while he's alive. Now, immediately when he takes his capital, he funds it with the 20,000, he gets access to his cash, which is 10,333. So if he takes his 20,000, puts it into a properly designed policy today, within the first month, that's what his cash values are going to be in his policy. Now, while his money has flowed into his policy, his money actually isn't tied up. He can access the cash values. Not only can he access the cash values, he's also going to have daily cash growth in the policy because the insurance company has a contractual guarantee to fulfill. And that contractual guarantee is that by age 100, his cash values must grow to match his death benefit. So every single day as Corey ages, which he does, he is getting closer to age 100. His cash value and his policy in that first year is going to keep increasing $8 per day because of this contractual guarantee. Again, that's just the first year. Every year going forward, his daily cash growth is going to become better, but you know, we're just going to focus on the first year. So if his cash values in the policy are $10,333, immediately the amount of cash value he can access from this particular Insurance Co. Is $9,300 as a loan, and that is called the loan available. So the loan available is 90% of the cash values, which is 9,300. So now with this particular insurance company that he has the policy with, the interest rate on the policy loan is 6.2% annual, simple interest. Corey's concern, just kind of circling it all back, that he said to me his concern was that he can only access 9,300 compared to his 20,000. So now I'm going to show you what he's going to do. And like I said, he's going to just change his process. He's just going to change the way he buys the investment. So just to recap, step one, he took his money, which is $20,000, starts a policy under proper guidance, and then in the third step, he's going to borrow the insurance company's money of 9,300 to go buy the investment. And let's see if he comes out ahead using this process versus the first two methods that he was previously using, which is cash or the HELOC. So when he uses IBC, he's going to take his $9,300 to invest at 20%. And now when you initiate a policy loan, that money comes from the insurance company. It's not your money, it's the insurance company. Your money actually stays in the policy growing. And in this case, since he's never interrupted compounding growth of his money, it's actually growing at $8 per day in the first year. But when he accesses a loan, the loan on his policy never interrupts the daily growth in his cash value. So he's taking that 9300 and he's putting it into the investment that yields the 20% return, which is that 1,860. Since he uses the insurance company's money, who charges 6.2% on interest, he has to pay that interest in that year of $576. So his net profit is 1,008 60, minus the 576. So his net gain on the investment is 1,284. So if you look at the first option, his profit was 4,000. If you look at the second option, his profit was 3,400. And when you use the IBC approach to buy the investment, he made 1284. And you're probably thinking, Henry, as a CPACA, something doesn't look right. You must do math differently than me. I thought you mentioned that this is going to be better for him. But it seems like he's actually better compared to when he's using cash or the heloc. And I'm going to tell you, and I told him this, I do do math differently, and I know it's natural that your mind focuses on numbers that are in front of you and it doesn't focus on the process. So let's go back to when he took that money from the insurance company to go buy the investment. How much of his own cash actually stopped growing in the policy. And the answer is none of it. So while he used the insurance company's money to accomplish the objective of buying the investment, his own money in the policy kept growing. So let's add that to his overall access to capital. And at the end of the year, his access to capital is not just the 1284 that he made the investment, but it's also including the growth that he had in the policy. So let's just compare. So let me just show you what that would look like. The first one here is again, he used cash, $20,000. The profit is 4,000. The money or the capital that he used was his. And the final outcome over there is that $40,000. Again, that money is tied up because he's using his. And he's funded his investment and it's tied up, and that's, that's where the benefits are. Now the only time you can actually access that money again is you have to sell the investment and get access to it, withdraw it as capital. And, you know, once you do that, the future growth in that investment stops. Well, let's take a look at the second method. That second method was that $20,000 where the money that he's using is from the banks with the profit of 3400 after he's paid the interest. So now he's using someone else's money to fund his investment. And by using that heloc, his money is not really his money. Right? So he get, he gets the profit, but that money is not his. And now let's take a look at ibc. So if we look at ibc, the approach using ibc, his first, if we look at the amount that he initially funded, again the same $20,000, he accesses the policy loan, and that uses that policy loan amount and fund it into the investment for a profit of 1284. When he does that, he's actually using the insurance company's money while his money is actually sitting in his policy, growing every single day at $8 per day. And this is again, just the beginning when he's using that while, while he just starts his policy. Well, once we kind of look at the profit that he gained from the investment and the daily cash growth, and that's sitting in his policy, that amount that he gets is 2,920, where if we add those two together, he actually has 4,020, 204 in terms of using IBC. And when Corey saw this, he couldn't believe what he saw, because all he was doing was just focusing on the numbers, taking $20,000, putting it into the investment. But what he never considered was the process. When he considered the process, he actually created a tailwind for himself because he flowed his money through his policy first. And because of flowing the money this way, he never interrupted the growth of his money. And that daily growth just kept pushing him further ahead financially. And if he follows this path, the outcome for the years down the road get even better. And if you thought that was all, there's actually more now. Normally when most people look at the numbers, they often forget that we live in Canada and they forget about taxes. They the CRA wants to tax you on the income that you've earned. When Corey uses method one or method two, if we look at the amount that's invested into a unregistered account, when he uses his cash to buy the investment, the taxable amount would be the full 4000. If he uses his cash or if he uses his HELOC, it would be the 3400 when he flows it to buy the investment. But when he follows and uses, when he changes his process and he uses IBC, he's taking the 1284 into the unregistered account for the investment. And that's the only portion or the base that gets included in his income to pay taxes. Whereas the other portion that tailwind 2,920 to $8 per day growth in his policy, he doesn't have to pay tax on that. That is completely growing tax free. So if you compare all three by changing the way and how he funded his investment, Corey did not just make more money as compared to option one. Option two, he also paid less taxes because the base that he has to pay taxes on is much lower. And this is all legally compliant with the cra. The thing I just wanted to share was I just wanted to share that if Corey could do it, so could you. What Corey needed, though, was a coach to help open his mind. And we are here, all of us here together, to also coach all of you on this process going forward. So what I just wanted to share, and here is what I wanted to share with you, that resonated with me personally from my own personal experience when I was first introduced to this process. Just, you can't get a better rate of return investing into anything without first controlling the financing function of that transaction. You can get further ahead from creating that financial tailwind by implementing becoming your own banker in your life, personally or corporately. For every transaction that you have the need for the use of money. Someone has to perform that function called banking for you. And that someone actually should be you.