In this Wealth on Main Street episode, host Richard Canfield introduces advisor Mike Smela’s deep‑dive into Chapter 5 of the book Cash Follows the Leader. The conversation reframes the common diversification mantra (“don’t put all your eggs in one basket”) by emphasizing control: if you own the basket, you can decide how many eggs to place and where. Smela contrasts true investing—requiring knowledge of the underlying asset—with pure speculation, which he argues dominates most retail portfolios. He brings in Austrian‑economics perspective from Ryan D. Griggs to define capital as the realizable monetary value of an asset, noting that whole‑life participating policies provide a clear, consistently growing capital base unlike market‑linked assets. The core strategy presented is to create a “family bank” by purchasing multiple whole‑life policies on different family members, each acting as a separate banking branch with cash‑value that can be borrowed against via policy loans. This multi‑policy approach, termed “Diversify in Lives,” mirrors Nelson Nash’s historic model where he owned dozens of policies, leveraged them for real‑estate deals, and generated tax‑free death‑benefit windfalls that replenished the family’s capital pool across generations. Smela outlines practical steps: recapturing third‑party debt through policy loans, feeding repayments back into the policy system, and continuously adding new policies for future generations. The episode ends with a teaser for the next chapter and a link to an interview with Ryan Griggs for deeper capital theory.
Chapters
Hey, it's Richard Canfield here. We've got a great new series that we're launching on Wealth on Main Street. I'm excited for this. One of our incredible advisors, Mike Smela, is going to be walking through our book Cash Follows the Leader. He's going to be going chapter by chapter, sharing all of his notes, his incredible observations, and the critical takeaways, the things that really stood out for him along the way. Now, he brings a breadth of experience and life experience on running different businesses, of course, and embracing this concept of becoming your own banker in his own life. Plus how he is now teaching that concept to other people. So you're going to get a lot of practical, real-world breakdowns from this book. You're going to get a lot out of it. So let's jump right in.
Hi, it's Mike. On to Chapter 5 of Cash Follows the Leader. So let's just jump right into it. We are on page 57 of Cash Follows the Leader, Chapter 5, Why Diversify in Lives? And what are your next steps? We've all heard the saying, don't put all your eggs in one basket. Well, if you control the basket, how many of your eggs do you not want in it? If you're familiar with the buzzword diversification, you can hang around with the folks on Wall Street or Bay Street. The reason or rationale for diversification is to prevent you from losing all of your money in any one investment. The thinking is that the more you divide your nest egg, into different financial vehicles or companies, the better chance you have of the good outweighing the bad, and therefore a steadier growth. The hope is that you reduce your overall risk by having more winners than losers in a given year over time on your combined portfolio. Makes sense. Again, when you don't control the vehicle or the basket. To some, it translates into don't bother learning too much about one specific industry or sector. You can just put on a blindfold and throw darts at your financial dartboard. We clearly do not subscribe to this way of thinking because it's nothing more than a wish, a hope, and a prayer that everything turns out to be, or that everything turns out okay. What is the alternative? One way requires a bit more education and analysis on the part of the investor. You would have to research companies, trends, and the economy to make informed decisions about where to invest your money. This is true investing. The former method is nothing more but pure speculation. For example, a real estate investor might zone in on a particular city and neighborhood because, uh, because of the job market trend. And major infrastructure improvements taking place versus buying in a location they know absolutely nothing about. Nelson Nash used to say an investment should only be in something you know a great deal about. Everything else is speculation. However, speculation is much more the norm. Most confuse speculating with investing. Think about our 401s, our investment portfolios. It's a reason, good, bad, or indifferent. It's a reason that our financial world, of which I've been a part of for a long, long time, primarily says, hey, you know what? Yes, you're a family person. You've got a bachelor's, a master's degree, maybe a doctorate degree. You run a business, you run a family, but you know what? Money is too doggone complicated. You need to leave it to us as the experts. Do you really buy that? Or is it just something that we've been conditioned to? There's equal confusion when it comes to defining capital. Our friend in Austrian economics, Ryan D. Griggs, is the best one to explain what capital is. Griggs defines capital as abstract, hypothetical, typically subjective monetary value of an asset. Basically, whatever you can realize in net currency when selling something is its capital valuation. For example, your home may be considered an asset, but the net equity you could receive if it was sold is its capital. This value can shift year to year based on market conditions. Whereas with a, a participating whole life policy, capital is clear. Consistent and consistently growing by virtue of the contract it is built on. Providing access to capital is the foundation of the banking business. Recapitalizing your own system, you create access to a capital pool from the life company you co-own while preserving your own capital assets principle, the cash value. This is the power of leverage combined with the maximum amount of control. A banker's dream. Capital provides more control and by its nature is not speculative. Without access to a liquid pile of capital, opportunities that show up in our lives cannot be funded. Ask yourself, is there any such thing as having too much capital? Have you ever heard of a business failing because it was overcapitalized? Of course not. Therefore, if you want to take advantage of an opportunity, your options are directly correlated to the size of the capital pool you can access. Whose capital pile do you want to tap into? A third-party gatekeeper, such as a commercial bank or finance company, or the pile you have exclusive control over and a company you co-own with the mutual whole life insurance. Richard Canfield indicates that Nelson's Infinite Banking Concept is, simply put, the best way to systematically accumulate and optimally deploy capital over time. This is on page 58, right there in all my notes. Again, the best way to systematically accumulate and optimally deploy capital over a lifetime. To learn more about capital, access our interview with Ryan Griggs at wealthwithoutbaystreet.com/capitaltheory. Systematic accumulation of capital via monthly or annual premium deposits will create a solid financial foundation. From this base of operation, you can now effectively and with newfound confidence Begin deploying capital as you need, such as pouncing on strategic opportunities and big deals. Many of our clients begin by taking control of the banking function as relates to their household or business needs. This involves reclaiming third-party debts from other lending institutions into your control, into your control using policy loans. Then commit that streams of payment to your own system so you never again lose control over that precious cash flow. This can rapidly increase your capital base and naturally leads to acquiring, uh, other additional investments that you seek out with educated intent from your capital warehouse. By capital warehouse, of course, we are referring to many participating whole life policies where you have available funds built into your cash values to borrow against. With the power of this collateral, You can take policy loans and acquire the things you need in life and pounce on high-caliber opportunities. So when we use the title like Diversify in Bodies, we refer to the lives you insure to accumulate multiple policies. Each policy created, if maintained by a policy owner, will efficiently grow day in and day out with cash values chasing after a growing death benefit. Until the day the insured person is no longer with us. At that point, the policy check is cut to the named beneficiaries as chosen by the policy owner, who maintains control of this whole system. That's a lot. In my own situation, I have a policy on me. Beneficiaries is my wife. We also have a policy on my oldest son. I have a policy on my daughter-in-law, my bonus daughter. We have a policy on my grandchild, their son, my grandson. So we have 4 bank branches, 4 policies in the Bank of Smela. Okay. Each one has its own unique amount that we can contribute to. Each one is continually growing. Each one has its own amount of cash value that we have access to utilize and use when we want to. That is diversification. 4 lives, 4 separate life policies, 4 different banking quote systems. Okay. I know this, I know that because my son, my daughter-in-law, my grandson each have life insurance policies on them that are going to last their entire life. I know, number one, that worst case scenario, God forbid, they're called home, their family's going to be okay. I also know that as they continue, and if they live long, prosperous lives, the value and the economic freedom that our life is going to have, or that our family's lives are going to have to control, is going to be there. Do they have another child or two? I hope so. Um, we will create another policy for each of them as well. And as they get, as they move on, they may create additional policies for themselves and for their kids as well. So this becomes systems. It's opening up different banking branches, privatized banking branches based off of whole life contracts to accomplish and be able to create places to put our capital in our lifetime and our family's lifetime. Back to page 59. Remember in chapter 1, R. Nelson Nash at one time had 49 life insurance policies on himself, family members, and former business partners. In fact, Nelson started 5 policies on business partners. He experienced not just one but two death claims on ex-business partners whom he did not even associate with any longer after their partnership projects were long finished. Now, the three remaining policies will still pay a tax-free death benefit to Nelson's heirs, as he was able to decide the contingent owner of these assets before he passed away. Much like Nelson acquired very strategic real estate investments using policy loans during his life, the new policy owner can do the same thing now that they control this rising daily asset. How cool is that? We practice what we preach and follow Nelson's good guidance. Success leaves clues. We simply mirror and model the system that has worked so well for Nelson and his family. We each own multiple policies on our own lives and that of our family members as indicated in Chapter 1. On top of that, we are focused on starting additional ones as soon as we can envision adding another. Our families have control over all the cash value that accumulate. These multiple policies create the growing pool of financial value we need to build wealth and mitigate risk for everyone participating in the family banking system. It allows for seamless continuity and the ripple effect to carry the system forward through generations. And remember, when Nelson passed away on March— in March 2019, 17 death benefit checks were paid tax-free. In addition, 28 policy contracts on different insured people that Nelson started are all in force after he graduated. This means that 28 cash-accumulating assets continue to grow the Nash family capital base as they follow the leader of the growing death benefits. Nelson's children experienced what he referred to as a windfall event, where large chunks of money come in at unexpected times. They were able to use the money to replenish outstanding policy loans on their own system and consider starting new policies. There is significant participation home life coverage on Mary Beth's. Eventually another windfall event will occur upon her graduation. This all took place despite the many ups and downs of market cycles over the 88 years of Nelson's life.
Wonderful stuff, right?
All right. We're going to stop there and we will continue, actually probably finish up, um, with the next, uh, the next segment. Have a great day. We'll talk to you on the next chapter.
All right. I hope you enjoyed the incredible experience of going through this chapter, this section, this insight of the book Cash Balls Leader. With Mike Smela. Make sure you tune in to the next section.
