April 2010 Quarterly Letter

Dear Clients and Friends,

Welcome to the inaugural Quarterly Letter for Bootstrap Capital! I’d like to start by thanking those loyal friends and clients that have chosen to join me as I launch this enterprise. As most of you know, I became an advisor and started Bootstrap Capital because I am committed to helping people grow their wealth over time. I am honored by your trust and support; and I am excited that you have chosen to join me.

The financial services industry has a vested interest in making financial planning seem incredibly complicated. Don’t get me wrong – it can quickly become complicated. But I firmly believe that Financial Planning can and should start with very simple, basic concepts that are easy to understand. Hopefully by creating a simple foundation, we will limit complexity as much as possible. At the end of the day, the best plan is one that a client can understand and feel comfortable with.

It’s Been a Crazy Year
(Or: Why Did You Become a Financial Advisor in the Middle of a Recession?)

Most people I’ve encountered, including everyone reading this letter, have been wildly supportive of Bootstrap Capital. However, there have been a few skeptical souls over the course of the last year who have, shall we say, challenged my basic assumptions in timing and career choice. I think that the market turmoil of the last year has shown the value and need of independent financial advice.

Actually the market turmoil of the last year can help illustrate the advantages of a disciplined and structured investment program. Let’s consider a couple of simple examples (In general, I’ll try to limit the math and numbers in my quarterly letters. But this in finance after all, we’ve got to use some numbers.):

1. Suppose you were invested in the stock market with a simple index ETF such as SPY which tracks the S&P 500 index: on April 14, 2008 SPY closed at 133.55. Two years later on April 13, 2010 SPY closed at 119.83. This represents a loss of just over 10%. If you add in the dividends you received, it is only a 7.3% loss. Not the best performance, but given the gyrations of the market, the bank failures and massive government intervention, it’s nothing to sneeze at.
2. If, like most of our investors, you pursued an asset allocation strategy, you could have done even better. To keep things simple, let’s assume that you have a portfolio that is 25% bonds and 75% stocks. We’ll use the previously mentioned SPY to represent your stock holdings and we’ll use BND, the Vanguard Total Bond Market ETF, to represent your bond holdings. Also, we’ll assume that you re-balance on a random date of May 20 every year and take dividends into account. In this case, your return would have been 0.3%. Essentially, you would be no worse off after one of the worst financial events in our lifetime if you had followed this simple disciplined approach.

As easy as this looks in retrospect, it was very difficult in practice. Panic and emotions can get the best of people. The biggest reason investors take losses in times like these is because they panic and abandon their plan at the worst possible moment. These types of feelings are totally understandable but they can be highly counterproductive. When you are making investment decisions in the face of massive market declines, it can be gut wrenching to take the actions required. That is why I believe that developing a disciplined strategy can help investors stay the course during tough times.

In Closing

I look forward to communicating with you on a regular basis. This letter is just one method. In fact, one of the biggest benefits of having an Independent Advisor is that you can call me any time.

As I mentioned earlier, I have some of the best clients around! I’d like to remind you that Bootstrap Capital is a referral based business. If you know anyone in need of Financial Planning or Investment Management services, please feel free to forward this letter or our contact information. We will treat your friends with the same care and diligence that we treat you.

Thanks,

Brian McCann