We last spoke with Bruce in September, when he acted on our counsel to trim his weighting in bonds and add to equities.

Bruce and Courtney’s portfolio rose roughly 2% in 2011 (its aggregate value at year-end was approx. $346,500). While Bruce isn’t popping any champagne, he realizes that their portfolio fared quite well considering its bias towards equities (which had a weak year).

At the end of December, their asset mix was:

Savings Fund – 10%
Income Fund – 26%
Equity Fund – 26%
Global Equity Fund – 22%
Small-Cap Equity Fund – 16%

The couple contributed $10,000 each to their RSP accounts this week. They want to keep on track with their strategic asset mix (SAM), so they didn’t add anything to the Small-Cap Fund (which had drifted higher, from 12% to 16% of their portfolio). They each invested $5,000 in the Equity Fund, $2,500 in the Global Equity Fund and $2,500 in the Income Fund. They had a tough time adding to the Global Fund given the mess in Europe, but they realize its place in their portfolio. They also understand that valuations for global stocks look attractive.

Bruce and his wife also contributed $10,000 each to their Tax-free Savings Accounts (TFSAs). They didn’t get around to adding to their TFSAs in 2011, so they had extra contribution room this year (reminder: you can contribute $5,000 per year to a TFSA. Unused contribution room carries forward). They used the Savings Fund in their joint investment account as the source of funds for the contributions.

The contributions slightly increased the Equity Fund’s overall weight in their portfolio to 27%, while the weight of the Small-Cap Fund was reduced to 15%. Bruce and Courtney’s bond weighting remains at the low end of their SAM range, following our advice that stocks currently represent better value. The couple continues to hold roughly 10% of their portfolio in the Savings Fund. As a reminder, the purpose of this cash is two-fold: 1) as a source of funds for a vacation property; and 2) as a source of dry powder if the market experiences a notable decline.

With their investments front of mind, Bruce and Courtney took care of one last piece of housekeeping – they RSVP’d for our Annual Client Presentation. They’re interested in hearing Steadyhand’s assessment of the markets. And they really like our cookies.

Last month we introduced Bruce, a forty-something investor with a balanced portfolio (tilted towards equities).

Bruce spent the last three weeks of August on vacation and tuned out the noise in the markets as best he could. The single malt helped. While catching up on his reading this week, however, he came across two pieces by Tom which encouraged him to make an adjustment to his portfolio (What Now? Part II and When Fear Rules the Market, it’s Time to Say ‘Buy’).

Upon reflection, he decided to reduce his position in the Income Fund by 5% (of his overall portfolio’s value) and invest the proceeds in our equity funds.

Recall that Bruce’s portfolio at the beginning of the year was broken down as follows:

• Savings Fund - 10%
  
• Income Fund - 30%
  
• Equity Fund - 24%
  
• Global Equity Fund - 24%
  
• Small-Cap Equity Fund - 12%

As at August 31st, his fund mix was:

• Savings Fund - 10.1%
  
• Income Fund – 31.4%
  
• Equity Fund – 24.0%
  
• Global Equity Fund - 21.9%
  
• Small-Cap Equity Fund - 12.6%

Even though his current mix hadn’t drifted significantly from his strategic asset mix (SAM), he felt it was a good time to take some profits out of bonds (Income Fund) and add to stocks. Sticking with our suggestion, he trimmed 5% from the Income Fund. Straying somewhat from our advice, however, he added 2.5% to the Equity Fund and 2.5% to the Small-Cap Fund. He understands the Global Fund’s role in his portfolio’s diversification, but has a sour taste for anything Europe and didn’t add to the fund.

With his portfolio now tended to, Bruce can focus his energy on finding an excuse to get out of the Keith Urban concert his wife’s trying to drag him to at the end of the month.

By Scott Ronalds

Meet Bruce. He shares several traits of investors who we deal with every day. In many ways, he is representative of a typical Steadyhand client. In this blog series, we’ll follow his investing journey and provide periodic updates on the decisions and challenges he faces.

Profile

Age: 42
Status: Married
Children: 2 (ages 8 and 10)
Occupation: Software Engineer
Residence: North Vancouver
Likes: The Boss, Running, Single Malt, Modern Family
Dislikes: Windows 7, Cucumbers, Sammy Hagar, Riesling
Steadyhand Client Since: December 2010
Investments:

• RRSP: $170,000 (Bruce); $100,000 (Courtney)
  
• TFSA: $12,500 (Bruce); $12,500 (Courtney)
  
• RESP: $20,000
  
• Non-registered: $75,000 (Joint)

Bruce is a married forty-something software engineer with two pre-teen kids. His wife, Courtney, works part-time in marketing and the couple makes a combined annual income of approx. $180,000. They own a house in North Vancouver worth roughly $750,000 (with a mortgage of $250,000). Bruce has been investing since the glory days of the early 1990s, but it was just over the past few years that he began to take greater interest in and control of his financial situation. The market downturn of 2008/09 was the catalyst.

Background

Bruce discovered Steadyhand through Tom Bradley’s column in the Globe and Mail. After following the company for a year or so, he and Courtney decided to transfer their RRSPs, TFSAs, and a portion of their non-registered investments to the firm in late 2010. They continue to hold an RESP and joint investment account at a discount broker (Bruce owns a few technology stocks that he follows closely).

The couple had dealt with an advisor at a brokerage firm for several years, but Bruce felt he wasn’t getting a lot of value from the relationship as he was paying for service that he wasn’t getting, he owned too many products, and transparency was lacking. He was tired of dancing in the dark. Bruce felt confident in his abilities to oversee his own portfolio and knew that Steadyhand could provide him with investment advice or at times act as a sounding board for his decisions.

Financial Goals

Bruce would like to retire in his early to mid-60s. Between now and then, he has some key financial goals. In order of importance, they are:

1. Put his kids through university (if they choose).
2. Purchase a recreational property (he has always wanted to own a cottage in the Okanagan, but has been increasingly looking at California and Arizona given their battered real estate markets and the strong Canadian dollar).
3. Grow his portfolio to the $1.5 million mark in today’s dollars (not including his house).

As for non-financial goals, Bruce would like to complete the New York Marathon. To Courtney’s dismay, he’s also expressed an interest in commercial space travel (Virgin Galactic), and would love to jam with the E Street band. As he often tells his wife, crazier things have happened.

Portfolio

Bruce and Courtney are comfortable taking some risk in their portfolio. They have an investment time horizon of 20+ years and do not anticipate any recurring income needs (from their portfolio) until they reach retirement. Their portfolio was hit hard during the market downturn of 2008/09 but they rode out the financial crisis without making any adverse knee-jerk investment decisions, and have since recouped their losses. That said, they aren’t comfortable with a 100% equity portfolio, as they have learned to appreciate the value of diversification in moderating volatility.

After consulting with us, they decided on a strategic asset mix range for their overall portfolio of 65-70% equities / 30-35% fixed income. Bruce has been discouraged by U.S. and overseas stocks and has developed a ‘home country bias’ due to the stronger returns that Canadian stocks have delivered over the past decade. We suggested that he shouldn’t ignore global equities, however, as they should be an important part of any balanced portfolio and currently offer compelling value. The couple took our advice and executed it as follows:

• Savings Fund – 10%
  
• Income Fund – 30%
  
• Equity Fund – 24%
  
• Global Equity Fund – 24%
  
• Small-Cap Equity Fund – 12%

This is a slight variation of our hypothetical Balanced Equity Portfolio (a position in the Savings Fund was added to the mix). The resulting asset mix is roughly 33% fixed income, 32% Canadian equities, and 35% foreign equities. For tax efficiency reasons, the Income Fund and Savings Fund are held in the registered accounts (RRSPs and TFSAs).

The cash position (Savings Fund) was recommended as a source of dry powder and liquidity in the event that: (1) bonds experience a rise in yields (and drop in prices) or stocks pull back following a period of strong gains; or (2) Bruce requires an early down payment for a vacation property.

The couple’s investments with Steadyhand totaled $340,000 at the beginning of the year ($270,000 RRSPs, $25,000 TFSAs, $45,000 joint investment account). At this level of household assets, their annual all-in fee is roughly 1.10%.

Bruce and Courtney have their financial house in good order. There are sure to be bumps in the road and decisions to make, however, as life plays out. We’ll keep you posted on their progress.