As Canadians brace for the annual RRSP season, there are two themes investors should use to cut through the inevitable hype and clutter. They are asset allocation and costs.

No matter what the mixed messages that come to you via television advertising for registered retirement savings plans, newspaper fund performance ads, free financial seminars and Internet discussions, try to filter it all through the lens of asset allocation and investment management costs.

When your broker asks you to cut a cheque for up to $13,500, tell him or her you want to scrutinize the investment recommendations for your portfolio from these two perspectives.

Two books shed some insight on these themes: The Intelligent Asset Allocator by William Bernstein (McGraw Hill, New York, 2000) and The New Investment Frontier: A Guide to Exchange Traded Funds for Canadians by Howard Atkinson and Donna Green (Insomniac Press, Toronto, 2001).

The first is written by an American, a neurologist from Oregon whose investment ideas on asset allocation and modern portfolio theory can also be explored at www.efficientfrontier.com. Bernstein has a follow-up book in the works, but the first one, published last year, has attracted plenty of positive comments on the wealth discussion forum I moderate.

The author was agitated by the valuations U.S. stocks had reached by 1999-2000, which means he pays a lot of attention to alternative asset classes, particularly bonds. If you remembered only his suggestion that you always have a healthy exposure to bonds (anywhere from 25% to 75%, depending on the usual variables) you would have more pleasant memories of last year's technology meltdown than the leveraged 100%-equities crowd.

However, Bernstein is also an advocate of equities. Through various graphs and "efficient frontier" curves, he shows that a mostly bonds portfolio, with even 10% stocks, is actually safer than a 100% bond portfolio.

That, of course, is the crux of asset allocation - to maximize reward while minimizing risk. And who doesn't want that?

Equities actually play a big role in Bernstein's mix. For those who love simplicity, he advocates four asset classes: U.S. large caps (representing the Standard & Poor's 500 composite index), U.S. small stocks, foreign stocks (Morgan Stanley Europe and Far East or non-North American), and U.S. short-term bonds.

Those who want to get complicated can break things into value and growth, global small caps, emerging markets and REITs (real estate investment trusts).

Now to the second theme and book: costs. "Costs matter" has been the clarion call of indexing guru John Bogle of Vanguard Group, who just happens to plug Bernstein's book on the cover with a "This is a GREAT book!" yellow starburst (his emphasis).

Little wonder, because Bernstein is almost as fervent an indexer as Bogle himself, or such Canadian indexing evangelists as Canadian Imperial Bank of Commerce's Ted Cadsby (author of The Power of Index Funds); or Bylo Selhi the enigmatic cyber pundit known as Bylo Selhi (see www.bylo.org); or Howard Atkinson. Atkinson, a marketing manager at Barclays Global Investment Canada (a supplier of exchange-traded funds or ETFs), has teamed up with business writer Donna Green to write The New Investment Frontier, a book that John De Goey, Assante Group advisor and pundit, has dubbed "the harbinger of a new era in the Canadian financial services industry."

De Goey recently shone the light on his own livelihood with two articles posted at the Web site www.fundlibrary.com, Mutual Fund Industry Wants it Both Ways. Go to the "Advisors Alley" section and then to De Goey's archived articles. In November, I wrote two columns based on De Goey's essays: A surprising salvo on MERs and Outrage builds over fund fees .

The first looks at trailer fees and advice under the traditional sales structure of "load" and "no load" funds. The second discusses the ongoing shift to fee-based advisory services using low-cost ETFs or index funds as the main underlying equity exposure.

Chapter 5 of The New Investment Frontier explores using ETFs with an advisor. It also presents a case for ETFs, how they differ from mutual funds, the problems in trying to pick winners among actively managed funds, tax issues, and the history and probable future of ETFs as an industry and growing phenomenon with the investing public.

If you are confused by the conflicting torrents of information on investing, try to read these two books between Christmas and the RRSP season. Then make an appointment with your financial advisor to discuss anything you may not have understood, and how these investing styles may affect any joint decisions, in the case of couples, you are making for your annual RRSP contributions.

The Atkinson book is $19.85; Bernstein's is US$47.95. If you are making a contribution of $13,500, consider the cost of these books to be money well spent - particularly as you are probably giving your advisor far more than that on fund trailer fees.