By Scott Ronalds

Along with his Steadyhand assets, Bruce has an RESP and small Investment Account with a discount broker. He takes an aggressive approach with the latter by holding a few small technology companies (recall that he works in the industry), knowing that it’s a minor part of his portfolio and he can afford to take a few flyers. Bruce likes to roll the dice in this account, well aware that they could come up craps more often than not.

One of his bets recently paid off, however. Bruce invested $8,000 (US) in early 2009 in a Nasdaq-listed company (Perion Network) that develops software applications for email and photo sharing. The stock has had some ups and downs since Bruce’s purchase, but tripled in value over the past year and his initial investment had grown to over $45,000. Last month he decided it was time to sell.

After setting aside some of the proceeds to pay taxes on the capital gain, Bruce was left with roughly $40,000, begging the question of what to do with the money. With the little angel on his left shoulder whispering “Pay down the line of credit or invest in the RSP” and the little devil on his right shoulder whispering “Time for a Porsche”, he visited our office to bounce some ideas off us.

It didn’t help that he was gazing across the street at the Porsche dealership while sitting in our boardroom, but Bruce realized that this option wasn’t very practical given his personal and financial situation (he has a young family and a line of credit used to finance a vacation home). When we probed him on his financial goals, he essentially answered his own question. He decided to use half the money ($20,000) to pay down his line of credit, invest another $12,000 in his registered plans (TFSA - $5,500; RSP - $6,500), and keep the original $8,000 in his discount brokerage account for a shot at the next Perion. We concurred with this combination of debt management and long-term investment.

As for the $12,000 he directed to Steadyhand, we recommended that he invest it in fixed income to keep on track with his Strategic Asset Mix (SAM). Bruce was a little puzzled by this, as he’s read about our tempered return expectations for bonds and yields on cash-like investments are extremely low. His SAM, however, calls for 30-35% fixed income and 65-70% equities. Because of strong returns in our equity funds over the past year (notably the Global Fund), he’s below the low end of his fixed income range. Since our current thinking calls for a cash reserve of 10-15% (in lieu of a full allocation to bonds), we recommended that he invest the money in the Savings Fund.

Bruce saw the reasoning in our advice and went ahead with purchasing the Savings Fund. It brought his overall fund mix and resulting asset mix to:

He’s off now for an extended Canada Day long weekend camping with the family. If only he had a Cayenne to get them there.