By Red Jacket Capital
If you’re spending time at the cottage this summer, well done. You’re fighting one of the greatest forces of wealth destruction, known as “soft money.” Taxes are an equally devastating force on wealth, but Canadians can have advantages there, too.
Invest Hard
Your cottage is a hard asset. As the saying goes, “They’re not making any more Muskoka waterfront.” That means the stock-to-flow ratio is high. Stock is the existing amount of something: gold, Bitcoin, or Muskoka real estate. Flow is how much of it is being made over time. Since little flow is ever added to the stock of gold, Bitcoin or Muskoka lakefront, these are what we call hard-money assets.
Soft money, such as government-issued currency, has a low stock-to-flow ratio. It is defined as fiat money, printed without limit by governments through central banks. Every “Loonie” that gets printed by the Bank of Canada devalues those in circulation and causes inflation, which serves to destroy your wealth. Since the start of 2020, largely in response to the pandemic, Canada’s money supply has grown more than 50%, while the inflation rate has more than doubled*.
To build on this opportunity, one could “borrow soft and invest hard.” For example, you could borrow Loonies (soft money) to invest in gold (hard money). All else equal, what you owe will depreciate, while what you own will appreciate.
What soft-dollar-denominated assets hold your wealth? Stocks, bonds, cash? Some of your wealth may be better stored in hard-money assets like gold, to avoid the destructive forces of inflation caused by soft money. In due time, Bitcoin will mature and become hard money. We agree with those who say it’s perfect money – only 21 million coins will ever be mined. After the volatility fades, it will be a perfect store of value.
Minimize Tax
If you live in Ontario, 53.53% of your top marginal dollars are paid in tax (seized by fiat – there’s that word again). The great news is that the Supreme Court of Canada has repeatedly decided that you can legally order your affairs to minimize tax, and any moral opprobrium about it is inappropriate.
More recently, a Tax Court of Canada case reaffirmed a legitimate tax reduction strategy that substitutes your marginal dollar tax rate for a cost of 18%.
At Red Jacket Capital, we believe that wealth is at the root of human flourishing. We are uniquely capable of protecting your wealth from the destructive forces of soft money and taxes. Our aim is, “keep more of what you earn, and earn more from what you keep.”
We invite you to have a conversation with us.
Send us a message to ask about how our “Hard Assets Assessment” could legitimately save you hundred of thousands in income tax.
Click here to access your free Hard Assets Assessment (valued at $5,000!)
Invest hard. Minimize tax. Preserve Wealth.
