By Scott Ronalds

The banks are running lots of cute, reassuring ads these days. To Bruce, they’re as painful to watch as his sinking Canucks. But they’re a reminder to him that it’s RRSP season.

Bruce contributed $6,500 to his account back in June and plans to add another $10,000 this week. His wife Courtney also intends to contribute $10,000. With the strong run in the markets last year, they’re not sure where to invest the money, so they stopped by the office for some advice.

(Note: if you’ve followed Bruce and Courtney’s history with us, their portfolio returned roughly 19% last year and has grown to approx. $485,000 since they signed up with us three years ago.)

We reviewed their portfolio and noted that their equity holdings had drifted higher as a proportion of their overall asset mix and their fixed income holdings lower (a lot of investors are in a similar situation, as stocks had a stellar year while the bond market turned in a negative return). The couple’s asset mix at the end of 2013 – as shown on the second page of their statement – was roughly 28% fixed income (11% cash; 17% bonds) and 72% stocks (29% Canadian; 43% foreign). Their strategic asset mix (SAM) calls for 65-70% stocks and 30-35% fixed income

We are still of the view that stocks will provide the best returns over the next five years (read more on our Current Thinking here), but valuations are testing the upper end of their normal range and we’re recommending that clients hold no more stocks than their long-term target calls for.

We did some calculations and determined that by allocating their contributions to the Income Fund, the couple’s asset mix will adjust to 70% stocks and 30% fixed income. Our advice, therefore, was to invest their full contribution ($20,000) in the Income Fund. Bruce wasn’t thrilled with this recommendation, given the fund’s modest return last year and our tempered outlook for bonds, but we held firm that this was the best course of action in order to bring their asset mix more in line with their SAM.

Bruce eventually came around (with a push from Courtney) and intends to invest the money in the Income Fund. He even left the office with a warm and fuzzy feeling. Probably had something to do with the headwear he left with.

Management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns.