Good evening, everyone. We still have some folks that are coming in, so please come on in, get a seat. And welcome to tonight's program on the Polsky Series: Mutual Fund Investment Strategies. If that's not what you're here to see, you're in the wrong room so you need to go somewhere else. I'm Emily Fowler, I'm Polsky Series Director and I want to thank you for joining us here tonight. If this is your first time attending a Polsky Series, welcome. And if you are back from a previous series, welcome back. As you know, you'll probably learn something tonight, so we're glad that you're here. I'd like to request, before we move ahead, that you turn off cell phones, pagers, BlackBerrys, blueberries, iPods, etc. Or at least at the time them to vibrant or silent or something like that, that's more exciting. Because of an incredible response to the program tonight, as you know, we are in Yardley Hall instead of the Polsky Theatre.
But if at any time you're not able to hear, we want you to let us know so just yell out. The Polsky Practical Personal Enrichment Series is underwritten by the Norman and Elaine Polsky Family Supporting Foundation within the Greater Kansas City Community Foundation in partnership with the Johnson County Community College. The series includes topics which are not being offered anywhere else where successful local professionals come to share their knowledge to benefit you. Norman and Elaine's name graces the beautiful Polsky Theatre which is next door to this space and a variety of events happen there every year. And I'd like to take this opportunity to recognize both Norman and Elaine Polsky for this example of their generosity. Let's give them a round of applause. As you may have read, Norman and Elaine have been chosen as the 2006 Johnson Countians of the Year and they'll be given this recognition at Some Enchanted Evening, which is a black tie fundraiser for Johnson County Community College scholarships.
This will be held Saturday November 11th at the Overland Park Marriott Hotel. It'll be chaired by Terry and Peggy Dunn. It's our 20th event. So, we're very honored to have Norman and Elaine as our honorees this year. I'd like to take a quick moment to make one acknowledgement to Mundy & Yazdi Oriental Rugs for the lovely rug you see on the stage tonight. And also to say a big thank you to the Carlsen Center crew and to our television crews tonight for helping us make the transition from the Polsky to Yardley at the last minute. So, we thank them for their help tonight. Out in the lobby tonight, we have a couple of books on sale, one of them is Adam Bold's book which is available this evening. It's titled, The Bold Truth About Mutual Funds, and it is priced at $10. That compares to the regular price of $14.95 plus tax, so we hope you will take advantage of this opportunity and don't leave without one tonight.
Now, we get to the packet that we gave you as you came in this evening. This is for you to take home and share with your family and friends. But let me take you through the contents of the packet. On the righthand side, first of all, is the order of tonight's programs. You can follow along there to see who's speaking when. On the back of that is our schedule for the entire year. And you'll see that starting tomorrow, you can obtain tickets for the September 6th seminar that will feature Eric Morgenstern, the CEO of Morningstar Publications and he's going to be doing a program called Excellence Not Difference: Building the Brand Called You. So that's our next seminar coming up in September. Behind this, you'll find a bio of Adam Bold, it gives you a little information on his background. Also, some information continuing through the packet on The Mutual Fund Store, the locations of the store across the country. And on the back of that, Adam's 10 Commandments of Investing, which is what he'll be covering on screen tonight and as he speaks to you.
Behind the mutual fund pages, Norman's materials start with My Legacy to You, Four Principals to Achieve Financial Independence. And on the back of that sheet, you'll find biographical information on Norman and Elaine Polsky. And then the last thing on the righthand side is a yellow sheet, this is Norman's report of his results with his mutual funds as of March 31st of this year. And this was put out April 26th, so you can take a look at that on the front and the back. Now, on the lefthand side of your packet, I know I'm going quickly, but I want to get to our program this evening. We have two cards. One is a blue question card, it looks like this. This is going to allow you to ask questions of our panelists tonight and I will be back, never fear, to remind you to fill out your Q and A card later.
Once you've filled that out, if you would pass it to the aisle the ushers will come along and they will pick these up from you and we'll get your questions up to the stage for our panelist. During the Q and A that takes place the last 30 minutes of our program. Also, the green survey card, this is very important, especially numbers 1 and 2 as far as our presenters that you see tonight. Norman wants me to get 100% of these back tonight. So, I'm counting on you to help me do that. So, before you leave tonight, please hand this to an usher on your way out. You can give us feedback on the other side. If you're not on the mailing list, you can be added and you can also suggest future topics for programs as we plan for next year. Also, on the left are main points from our first two seminars. Following that is a Fortune Magazine article called "You're on Your Own". This is from their 2005 retirement issue and Norman will make reference to this during his presentation so you might want to pull that out and put it on top.
And then the last piece there is some information about Peter Newman's 17th Annual Financial Planning Seminar Cruise, which is an interesting combination of topics. So, hope you'll look at that. There's more information on that in the lobby also. Okay. I think we've covered the packet and what I'm going to do now, without further ado, is hand the program over to Adam Bold. Emily did a great job, didn't she? Yeah. Yeah. Okay. Well, thank you for coming out this evening. I want to thank, of course, Norman and Elaine for having me here this evening. It's really my pleasure. I see some familiar and friendly faces out in the audience. I see some unfamiliar which may mean unfriendly faces.
I don't know, we'll see how things go throughout the evening. It was pointed out to me, we do have one celebrity here this evening, Mayor Pro Tem Alvin Brooks is here this evening and Alvin and I met the first time we met was on we were both asked after the President's State of the Union Address to come on television and talk about it. I think our views were a little bit different but I think that was the beginning of a beautiful friendship as well. So, welcome to Mayor Pro Tem Brooks. All right. Before I start. I always like to start with a story. So, before I get to any of this important mutual fund stuff I'm going to start with a story. And the story that I'm going to tell you tonight is about the day that Albert Einstein died. And so, Einstein dies and he goes up to heaven and he's greeted by Saint Peter. And Saint Peter says to Dr.
Einstein, "It's really a privilege to have you here, you know, it's an honor. We've got you set up with this really nice place. It's a condo. It's in heaven's acre. But it's a big place and I think you'll like it. You're going to have 3 roommates and, you know, I think you'll really, really like this place." So, Dr. Einstein goes over to his new condo and here's his 3 room mates lined up. So, he goes up to the first guy and he says, "Hi, I'm Albert Einstein, what's your IQ?" And the guy goes, "180". And Einstein goes, "That's great! Because you and I can spend the rest of eternity talking about relativity and all the secrets of the universe that we know know that we're in heaven and that we didn't know when we were on Earth.
" So, he goes up to the second guy and says, "Hi, I'm Albert Einstein, what's your IQ?" And the guy goes, "110". And Einstein goes, "That's great." He goes, "You and I can spend the rest of eternity talking about sports and women and all the things that made life great." So, he goes up to the third guy and he goes, "Hi, I'm Albert Einstein, what's your IQ?" And the guy says, "60". And Einstein goes, "So, how'd the market close today?" All right. With that, we'll begin. So, it was either that or joke about the Royals, but it hurts too much. Tonight I'm going to talk about the 10 Commandments of Investing. I've been given a half an hour to do this. I do 3 hours of radio every Saturday and so, you know, a half hour to me is, you know, I'm just getting warmed up.
So, we'll see how quickly I get through here. Let's talk about the 10 commandments. Number 1: You Shall Know Thyself. What I mean by this is, you know, there's a lot of places in today's world where you can get investment information. You can go to Barnes and Noble and I bet there's at least 30 magazines about investing. We know that there's CNBC. We know that there's Bloomberg Television. We know that there's the Nightly Business Report. We know that there's Norman Polsky. We know that there's your next door neighbor, the guy that sits in the cube next to you at work. There's all these places where is people go, "Oh, this investment, this looks like a good investment. And this looks like a good investment." And there's all this information that's coming at you.
But I contend, before you can make even one investment, before you can put $1 into anything, you have to know what kind of person you are. Now, The Mutual Fund Store, we have clients who come to us and say, "Adam, you know, if I ever get my monthly statement and it's worth a dollar less than it was worth the month before, I'm not going to sleep for the whole next month until I get my next statement." We have other clients who say, "Hey, Adam, I don't care what it is on a month to month basis, I'm going to retire in 20 years and I want to know that in 20 years, the money is going to be there. And I don't really care what it does in between." And then we've got all kinds of people that are in between. So, just because an investment is good by some magazine telling you that or somebody on the radio telling you that or whatever the case may be, doesn't necessarily mean that it's appropriate for you. Before you can make any kind of investment at all, you need to know where you're coming from. Where are you on that risk spectrum? What feels comfortable to you? You and your next door neighbor may have exactly the same amount of money, but what feels right and what is appropriate and is comfortable for you, and what is right and appropriate for them are going to be different.
So, you have to know where you're coming from psychologically and before you can begin investing. Number 2: You Shall Know Thy Advisor. I contend that there are two kinds of people in this world. There is one subset of people who have the intellectual and emotional capacity to be able to make their own investments on a daytoday basis. And then there's a second group of people who do not have the emotional and intellectual capacity to make their own daytoday investment decisions and those people need to get help. Now, I will tell you that admitting that you need help, there should be no shame in that whatsoever. Now, I will be the first one to tell you that God has given me a lot of gifts but mechanical ability is not one of them. I can successfully change a light bulb unless it's stuck. And if it's one of those ones that's kind of jammed in there, then the electrician is coming to my house to get that light bulb out, okay? Now, when my car breaks, I do not attempt to fix it. Now, I like to think that I'm smart enough that I can get the Chilton's manual.
And I could figure out what was wrong and I could go to the part store and the guy could explain to me, you know, how to put the parts on. And that I could do all those things, which would actually involve my buying tools, which are something that I really don't have any and don't want and have no use for. But I'd like to think I could do that, but quite honestly, I don't have the emotional ability, the intellectual ability to fix things. It's just not my gift. So, what do I do? When my car breaks, I take it to the dealership and I have somebody who works on it that knows what they're doing. Well, the same thing is true with investments. There are some people who understand what's going on and those people should do it on their own.
There are some people who need help. Now, if you're one of those people who needs help, you've got to find the right person. And to find the right person, you have to ask a lot of questions. I contend you, start with question number 1, which is how do you get paid? Now that seems like a simple question but it's really not as simple as it might seem. For example, if you go to see a broker at Edward Jones, based in St. Louis. Big brokerage company, offices all over the country. And you say to the broker, "Okay. You're going to take my money and you're going to put it in mutual funds, how do you get paid?" What he will tell you is, "Okay. Here's the deal. I'm going to sell is you these mutual funds and they have a 5% commission, a 5% load. So, if you give me $10 thousand, then I get $500 and there'll be $95 hundred in your account. And that's how I get paid." Seems simple enough. But that's not the whole answer because as it turns out, Edward Jones engages in a practice that they call shelf space fees.
Sounds fancy, what is that? Well, what it is is, Edward Jones' brokers work off of a preferred list of mutual funds. And so, when you as a customer go into the Edward Jones broker and he whips out this preferred list of funds, as a consumer,you think, well, if they're preferred, that means that Edward Jones, the company have gone through and they've researched it and they found out of all the mutual funds that are out there, that these are the best ones. And that's why they're preferred. But as it turns out, the reason that they're preferred is because these mutual fund companies pay Edward Jones a fee of $500 thousand to a million dollars per fund to get it on the list. And they pay Edward Jones an ongoing management fee of a third of the management expenses that the mutual fund gets.
Now, in 2005, Edward Jones received $172 million in shelf space fees. So, they got $172 million that didn't come from providing any sort of investment advice or giving, recommending something. They got $172 million paid to them directly by the mutual fund companies. In 2005, Edward Jones had net profits of $330 million. So, more than half of their profits did not come from the act of providing investment advice but rather more than half of their profits came from these fees that they got under the table. That if you asked how do you get paid, more than likely you're not going to get the whole story. Other things you need to ask your advisor: What is your area of expertise? Now, I will tell you at my company, what we do is we help people manage their investments using mutual funds. We do it for individuals. We do it for small businesses with their 401(k)'s, and that's all we do. We don't sell insurance.
We don't do estate planning. We don't do taxes. We do this one thing and we do it very well. Now, if you come to us and you say, "Hey, Adam, what we want what I want to do is I want to trade stocks." We will say,"No. You need to go find somebody else because that is not our area of expertise." Excuse me. I'm actually just getting over a cough and when I left this evening my wife said, "I hope you get better." And I wasn't sure if it was the cough or the speech that she was talking about. But the bottom line is that, I used to work for one of the major stock brokerages. And when I did, if you wanted to trade stocks, I was your guy. Municipal bonds, sure. Commodities, I was licensed to do that. Insurance, sure. I did all those things. And as a result I was licensed to sell all those things but I was an expert at nothing. You need to figure out what your advisor is really, really good at. Hire somebody who is the best at what they do. If you get an illness, you don't just pick any doctor.
You find the best doctor you can for the type of illness that you have. When you're making investments, you find the best advisor for the type of investments that you want to make. Better move on. Number 3: You Shall Have a Plan. You know, most people, here's how they accumulate investments. They read an article in the magazine that says, "Hey, this investment's really good." And so they put $10 thousand into that and then some broker calls them up on the phone and says, "This one's good." And so they put $5 thousand into that. And then they see something on TV and that looked good, so they put a little money into that. And then next thing you know, you've got this whole amalgamation of investments that you've accumulated over the years. That is not a plan.
I contend that when you're investing, whether you're starting out in investing or whether you're trying to create income and preserve your nest egg, you must have a plan. Let me use another medical analogy. If you had to go in today and have your appendix out, the surgeon has a plan. You know, first they put Betadine on your belly. Then they, you know, first they give you anesthesia because it's important. Then they put Betadine on your belly. Then they make an incision, then they, you know, and if something unexpected arises, the surgeon deals with it and then he goes about finishing the plan. And that's really the key. The same thing is true with your investments. Okay? If your goal is to retire in 20 years and make sure there's enough there, we can put together a plan to get you from point A to point B. If your goal is, I have this amount of money and I want to have, you know, $3 thousand a month income out of my account for the rest of my life and I want it to go up by enough to cover that and inflation.
Great, we can do that. If it's, I've got a 14year old daughter who thinks she knows everything and yelled at her dad before he came here tonight, and she's going to go to college in hypothetically. And she's going to go to college in 4 years, you know, we can put together a plan for that. But you have to have a plan. You can't just accumulate things. Rather, let's put together a strategy to get you from where you are now to where you want to be. Number 4: You Shall Be in the Best Funds Possible. Now, if I could only give one, this would be it. And that is, if you're going to take the risk of the market, you owe it to yourself to be in the best funds. Now, here's the thing. I like sports. And I use a lot of sports analogies in the things that I do, and one of my favorite spores is baseball, unfortunately. Because I do love the Royals. And, you know what? You guys, I can't every day I get the paper out and I look and my wife keeps going, "Why do you keep doing that?" Because I can't help it.
But when you look at the New York Yankees, they have a third baseman by the name of Alex Rodriguez. And Alex Rodriguez is the highest paid player in all of major league baseball. He gets $25 million a year for being the third base man for the New York Yankees. Now, here's the thing. Just for the sake of this discussion, let's assume that because he's the highest paid, he's the best third baseman in all of baseball. Just give me that for this discussion. When the Yankees pay $25 million a year, and when they get Arod as their third baseman, that means that no other team in all of major league baseball can have Alex Rodriguez as their third baseman. Only the Yankees can have the best player. But with mutual funds, it's not like that. As long as you the mutual fund is still open to new investors. And as long as the mutual fund, you have enough money to meet the minimums that the fund company has set, there's no reason that you can't have the very best manager out there.
You know, when you buy a new house and you move, it's a big hassle. You've got to pack up all your stuff, you've got to have a truck come and get moving. Your house is a big deal. Moving from one mutual fund to another is a phone call away. It's a mouse click away. It's a [inaudible] an electronic transform form. It seems like it might be a big deal but it's really not. And everyday that you continue to hold the fund that is doing poorly is a day that you're giving up the potential for something better. In this world there are those all stars out there that cost no more. It's no more difficult, it's no more expensive to own the good ones than to own the bad ones. There's no reason to suffer with bad ones. Number 5: You Shall Not Pay a Load. In 1933, the first mutual fund was started; it's called Massachusetts investor's trust. It was from the MFS, family mutual funds which is not Mutual Fund Store, but Massachusetts Financial Services. And it was a load fund.
So, if I was here in 1933 and I was giving this speech, I would say pay a load because there was only one mutual fund and you had to pay a load to get it. In today's world there are so many great mutual funds that do not have a load that there is no reason to pay one. Now, you guys, remember back a long time ago, 10 years ago, there was only 1 phone company. Right? And do you remember, you used to say things like, "I can't call my mom until Sunday night because it costs so much." And you would wait until the right times to call people because there was only one phone company and it was expensive. Now, we have lots of phone companies and nobody even thinks twice about making long distance phone calls. I mean, it's free on your cell phone. You get unlimited long distance from your house, nobody would ever think of going to AT&T and saying, "Hey, let me pay you a dollar a minute, or whatever it used to be, to make long distance phone calls." Okay, well the same thing is true with mutual funds. When there are so many great that doesn't mean that there aren't any good load funds out there, there are. But for every good load fund that's out there, I'll show you a no load fund that is as good or better.
And you don't have to pay the high price to buy it. Okay. This has nothing to do with my presentation, but what I generally find is that when I put things like this in my presentation it raises the general happiness level of the crowd. And then when people go home, they go, "Hey, that guy was pretty good. Yeah, I feel good." I used to have the Royals logo here too, but it didn't help anybody. Number 6: You Shall Stick to Your Plan. We talked earlier about the plan. Okay, so you put this plan together and you come and you sit down with an advisor or you do it yourself. And you put together a plan to get you from where you are now to where you want to be. And it's great. And here's this plan, it's written and you've got Pi charts and you've got this plan to get you from it's great. Written plan.
And then what happens is, we have a few weeks like we've had the last few weeks in the market. And people go, "Holy cow, I've got to sell everything. I got to get out." No, no. You know? Maria [inaudible], my good friend, Maria, she gets on television and she goes, you know, she gets these people on there and she's like, "The market's down 30 points. Why?" Well, you know, who in the heck knows why the market is down 30 points. Here's what I'm going to tell you is that CNBC, they love to scare the pants off of each and every one of you. Okay. And let me tell you why, because when you're scared, you watch more of CNBC. And when you watch more CNBC, they get to sell their commercials for higher prices than they did when less people were watching. If they put a bear on the cover of Money Magazine, people are scared and so they buy it and then they get to sell their ads for higher prices than they did when there was no bear on there.
Okay. They love to scare you. The bottom line is, if you've got the right kind of plan, the plan that is appropriate for your level of risk, your risk tolerance. Sometimes things are going to go down. I hate to tell you that. Sometimes things are going to go down. But if you have the right plan for you, you can weather just about any kind of market environment. Number 7: You Shall Save. Now, there's people in this room who have already accumulated their nest egg and are set for life and just want to keep what they have, get some income, etc. There are people in this room that are just starting out. And even for you people that have your nest egg, I'm sure you have kids and grand kids and other people that are just starting out. A lot of times people come to me and they go, "Adam, when I get $10 thousand together, then I'm going to invest it." And the problem is, between $0 and $9,999, when it's sitting in your checking account, it's really easy to go out to dinner one more time. It's really easy to go out to one more baseball game. It's really easy to buy an extra Christmas president, and an extra dress, whatever the case may be and go through that money.
I will tell you that very few people in this world get to come into large amounts of money at one time. Very few of us get to win the lottery. Very few of us get to have Aunt Mable die and leave us millions of dollars. Very few of us get to sell a piece of real estate and get this huge sum of money all at one time. I will bet that the vast majority of the people in this room who have accumulated their nest egg did so by saving small amounts of money over long periods of time. Norman will talk about that a little bit later in his presentation, but here's what I'm here to tell you. You start now. There are mutual funds out there that will let you start with as little as $250 and will let you put as little as $50 at a time in after that. So, what I tell people people come to me young kids right out of school. I'll say, "Look. Start with 250, put 50 bucks a month into the account." The first time you get a raise, let's say you get $100 a month raise, increase the amount you're saving every month from $50 a month to $100 and spend the extra 50.
The next time you get a raise, put half of it, increase the amount you're saving every month. It's amazing how much money you can accumulate over long periods of time. But the trick is to do is month after month after month. Too many people, it's too easy to say, "Well, when I get this much together, I'll do it." The problem is, most people never do it. Number 8: You Shall Be Proactive With Your Retirement Plan. If I took a poll in here and I said, "How many people in this room think you ought to save for your retirement?" Everybody will go, "Yeah, I think you ought to save for retirement." The reality, though, is that for most people in this country, unless the money comes out of your check before you get the check, they won't do it. You know, everybody knows it's a good idea. It's one of those things where you know it's a good idea, but unless the money comes out, they won't do it. So, for most people, their 401(k), their 403(b), their 457 plan, their retirement plan at work will be their single largest retirement savings. Okay. If that is going to be your single largest retirement savings, don't you owe it to yourself to ensure you're making the most out of that plan? I will tell you that there's an industry statistic, and that is, only 1 in 6 people who have a 401(k) ever make a change to the funds that they have in their 401(k).
Think about that. Only 1 in 6. Why is that? It's because people get their job and they get a new job and they go, "Okay, here's your W4, tell us how many exemptions you want." Here's your health form, fill that out. Here's your 401(k) form, they don't know so they ask somebody or whatever and they fill it out. And then they just forget about it. And they figure they're doing at least I'm doing the 401(k). Well, doing the 401(k) is not enough, you have to do it right. Number 9: You Shall Not Buy What You Do Not Understand. I'm going to try and make this as concise as I can because Emily's waving at me. But, a lot of times, people come to me and they say, "Adam, you know, I got this thing and it's supposed to be this, but it really hasn't worked out the way that I thought it was going to work out." And I'm going to give you a perfect example. And there's some people here in town that don't like it when I talk about this, but I'm going to talk about it anyway. There's an ad that runs in the Kansas City Star, runs in some other papers across the country.
And what it says is, "Nine and a half percent interest, paid monthly, guaranteed." Runs in the paper every week. Sounds like a pretty sweet deal, right? Nine and a half percent? Guaranteed? Monthly? Sweet deal. Okay. So, I call it. It's from a company called Pioneer Financial Services. So, I called and I got a copy of the perspectives for this deal that Pioneer Financial Services had. And it turns out, unless you read the perspectives, you wouldn't know this. But what it is it's a preferred stock that is issued by Pioneer Financial Services. So, here's the deal. It is guaranteed. It is not guaranteed by the US government, it's guaranteed by Pioneered Financial Services. It's not exactly the same thing. Okay, number 2. What they tell you very clearly in the perspectives is that there is no secondary market for this preferred stock. What that means is the shares are not listed on any exchange. So, when you buy those shares, you can't sell them because there's nobody to sell them to.
There's no marketplace in which to sell these. And when you die, guess what? Your kids can't sell it either because there's no secondary market. But you wouldn't know that if you didn't read the perspectives. Okay. Number 3, how do you think they pay you 9 and a half percent interest? What do they do? Well, here's what they do. Pioneer Financial Services is in the business of making loans to service people in the armed services. Their average loan is about $400 and they charge about 24% interest. So, what they do is they get investors to put the money in at 9 and a half percent and then they loan it out to these service people at 24%. Now, I'm here to tell you, nobody goes into the military to get rich. Okay? These are people, you know, you came here tonight in your air conditioned car. And you're going to go home to your air conditioned house. And you go to the grocery store and we have oranges in the winter. And we have safety and security, and we've got the best schools in the country right here.
And we have the clothes on our backs. We have all these things because there's these men and women that are putting their lives on the line to preserve the lifestyle that you and I lead. And to have these people charge them 24% interest, I find personally, reprehensible. Okay, I could not feel comfortable making an investment like that. You know, when you get to borrowing $400, that's not money that "I want something" that's "I need $400 right now." Okay? But if you didn't read the perspectives you wouldn't know. I'll tell, you I will do this. How many people in this room have ever read a perspective? Okay. Now, let me ask you this, how many people in this room have thrown away 20 times more perspectives than they've ever read? Yeah. See, what the government keeps doing is, they go, "You need to have more disclosure.
" So, what they do is they put more and more stuff in these perspecti and the perspecti gets thicker and thicker. Well, I contend and they're saying, "Well, yeah, there's more information in there." But I contend, the thicker they make it, the less likely it is that anybody will ever read it. If you don't understand it, don't buy it. Number 10: You Shall Not Buy Annuities. I'm cutting into Norm's time. I'm going to do this really, really quickly. There are 2 kinds of annuities. There are fixed annuities and variable annuities. This is why I do not like these products. Number 1, a fixed annuity is basically like a CD except for it's issued by an insurance company instead of a bank. And so, what they do is they go, okay, here's and this is the way they sell them. It'll go they'll pay 9% in the first year. And then after that, it'll pay a market rate.
But we know that the market rate will never be less than 3%, okay? And so, what happens is, you buy this. And if you sell it within the first 10 or 12 years, there's a penalty to get out. What happens is, they pay you 9% the first year and then it goes to 3%. And they say, that's the market rate. And it's the market rate forever. And if you change your mind and want to get out, you might have to pay a 10 or 15% penalty to get out. Let me just tell you about annuities. They are issued by insurance companies. These insurance companies are Fortune 500, multibillion dollar, multinational companies that issue these things. They have people working for them that are called actuaries. Actuaries are people who are really, really good at math. And we're not talking about you know, pretty good at math. You know, MIT, PhD's in math. Okay, and what these actuaries do is they figure out what rate of return the insurance company can earn on their money.
And they figure out what rate of return, what's the least they can pay to somebody to get them to buy this thing. And that's what they sell. Okay. Now, when you buy one of these, who do you think knows more about whether the interest rates are going to be good? You? Or the guy who's really, really good at math working for the multibillion dollar, multinational insurance company? If those insurance companies thought that they were going to pay interest rates that were higher than you could get at some bank, or by shopping around on the internet, do you think they would sell that product? I don't think so. The second kind of annuities are variable annuities. These are basically a family of mutual funds that are issued by an insurance company instead of directly by the mutual fund company. Here's why I don't like variable annuities. Number one, they have very high fees.
The way that a mutual fund company makes their money is from their ongoing management expenses. It's typically about 1%. If you have a mutual fund and an annuity or outside of an annuity, they get that 1%. So, how does the insurance company make their money? Well, what they do is they add another layer of fees on, typically one and a half to 3 and a half percent a year. And that's how so, if you have the exact same fund outside the annuity, it's going to do one and a half to 3 and a half percent a year better than owning it inside the annuity. The second thing is the tax treatment. If you buy a regular mutual fund today, it goes up in value as long as you've held it for 12 months and you sell it, the maximum tax rate you're going to pay on those gains are 15%. With an annuity, those gains are taxed as ordinary income which can be as high as 35%. So, you can end up paying more than twice as much in taxes on the exact same amount in gains. Number 3, most of these annuities has back end surrender charges.
The guy will say, you put your money in. If you sell it within the first 7 years you have to pay a penalty to get out. But you're a longterm investor, you're never going to do that. So, it'll never affect you. Well, I'm here to tell you, I talked about my 14year old daughter earlier. I remember being 14 and thinking that I knew there was to know about the world. And then when I was 21 I look back and said, "Oh my gosh, how could I had been so stupid?" And then when I was 28, I look back at 21 and, you know, so on. Seven years is a long time. How many people in this room are or have your attitudes about risk and investing changed over the last 7 years? Why do you want to buy something never buy something where your decision as to whether keep something or to sell it is based on anything other than the underline quality of the investments themselves.
You don't want to be trapped in something. So, don't buy something that has a surrender charge. With that, I'm going to go ahead and end here and we'll, hopefully, have a little more when we do our questions later. So, that, thank you. And my pleasure to introduce Norman Polsky. Before Norman gets rolling, just one more reminder, those blue Q and A cards, if you would write who you would like to address your question to as well as what your question is, pass it to the aisle and the ushers will pick these up. Thank you. Thank you. Be sure to tell me 5 minutes. I will. Okay. Can you hear me? Okay. Any time you can't hear just holler, "Louder, louder." We've had a problem before at our seminars and I want to be sure that you can hear. This book by Adam is a good book. He's got good advice in here, you can tell by the way he talks to you. This would be a good gift to give to your father so that you don't have to support your father in his old age. Okay? But the Father's Day is coming up.
$10, a special price. And then we have Mr. Stowers book. It's actually written by Stowers book is written by Jack Jonathan. And the cartoons are a high class cartoon fellow. This book is generally $35, but when you call in for it, he gives it to us special for the Polsky Series for just $10. This is another thing you should pass on to your family. Your parents, your spouse and you, and then your children. Because none of you want to be dependent upon the other person for taking care of their financial. And I'm really sure that you've all seen that, or the hand writings on the wall, social security and Medicare are in danger. And the politicians won't do anything about correcting the situation right now. So, it's going to come up to the point where, I believe, in 10 to 20 years, there will not be either one of those things.
And if you don't have Medicare, and you have to have an operation, it can run your family up to $500 thousand, could create bankruptcy for your family. So, get this book. It's got all kinds of good information. It's my bible that I have been using from since I started in since he came out with his first edition. This is the fourth edition of his book. Adam has given you some good advice. Allan Sherman, have you ever heard his record about Hello Mother, Hello Father? And that's good advice and he just gave you some good advice. And we call it some good aha's. That's ideas he's implanted in your mind. But you'll forget 75% of what he says, that's why you've got it in writing, what his 10 commandments are to take home, go over with your family. All right.
The book here, page 56, pull My Legacy to You out. On page 56 is one of the four major things that he's talking about in this book. It's never too late. A lot of people come to me and tell me, "Oh, Norman, I should have known you 20 years ago." But it's never too late and that's what he's getting across on page 56. And he only talks about excuse me 16% interest. He doesn't believe people, Jim Stowers doesn't believe people will understand that amount of return because they're only used to getting 7%. So, he won't go for 20% like what my goal is, or actually, in the last 5 years my big 10 mutual funds has a record of 32% over the past 5 years annualized. So, he talks about 16%. And at the age of 20, it's a lot easier. You know, $1.57 is all you have to put in a month, times 12 months, times 45 years until you're 65 then stop putting money in.
And that would be an investment on your part of $848 but you would have $524 thousand in principal. Or, for the next 35 years to the age 100. And people are going to live to 100. I am 82 and I've been seeing people going on, many of them, up to 90. You're hearing about 80year olds now. And my kids that are in the 50's are going to go to, for sure, past 100. I may make it to 100. Then if you go to the next group, but you can pull out that $524 thousand, that 16% interest, you can pull $1,251 a month for the rest of your life. But you're eating into the principal. If you would take just $6 less a month you could leave the principal to your heirs and you'd still be taking out $1,245 per month. So, then if you're 40 years old, you'll have to put in more money, 31 a month times 12 months, times 25 years because you're 40 and you got to go to 65.
You'll be putting away $9,000 for the same value. Or if you're 60 years old, it's still not too late, you only have 5 years to invest to age 65. And that figures up, you'll be putting in 67 thousand, but it's going to be worth 524 thousand at 16%. That's a terrific principal that he's talking about here, and I believe that 100%. Then on page 137, you know the Dow Jones started in 1897. And he's saying, in his book, and he's got the proof in the book if you read it. That over time, the stock market always seeks new highs, it may go up and down, like in 1987 it dropped 500 points, the Dow did, in one day. But by the end of that year, that was October the 19th, 1987. And by the end of the year 123187, it already made that up and was at the end of the year it had a positive 5%. So, but the big problem is the dollar of 1897 was only worth 6 cents in 1993. The Dow would have been worth the investment $11,220.
And this is the biggest problem I have with people, widows and so forth that say, "Oh, my husband left me bonds that I'm taking care of. They don't understand that the average person hasn't put aside $50 thousand for their retirement over and above their 401 or their IRA or something. But only $50 thousand, in 20 more years you're 65. And by the time you're 85 you will have lost 20 years. At 3%, you will have lost 60% of your principal purchasing power. And you will only have the purchasing power of $40 thousand. And the big problem is that the retirement home that you go to in Kansas City right now is $50 thousand a year. But 20 years from now it might be $500 thousand a year. So, you never have enough money and you can't afford to retire. I try to tell that to people. And that's why you see people working at the grocery stores, old people sacking groceries.
They do it for two reasons, they want to make that $5 thousand a year that they can put into a Roth IRA. And they can keep putting it in even after the age of 70 and a half. And then another 5 thousand for their spouse so that they can, in 20 years, they were 65. By the time they're 85 they can be a multimillionaire extra than their 401(k) or anything else they have put aside. It's just a good way to protect yourself. The next thing down is page 190. The amazing results of consistent monthly investments. Now he's trying to talk about if you're under 50, you can put away $4 thousand a year in an IRA Roth or an IRA traditional. A Roth if you can qualify. You have to be under a certain $90 thousand a single adjusted gross income or if you're a married couple, it's about 190 thousand. Well, there aren't too many people that are over 65 years old making 190 thousand so that most of them can have a Roth IRA. And that way you don't have to pull out at the age of 70 and a half, you can keep putting in is what that is and keep building that nest egg. But what he's trying to show here that if you had two mutual funds, and there's 12 thousand to choose from.
And what Adam is talking about it's hard to find good mutual funds that beat the S&P 500 index. Out of 12 thousand I don't think there's 1%, 120 that beat the S&P 500 index. So, anyway, if you had these two that starts at $6, they both do. But this one, fund A goes up, straight up at the end of 10 years you're going to sell out. You're going to put in $100 a month. That's times 12, times 10 is 12 thousand a year is what you're going to put in. And it goes straight up like this to $16 and you sell out. Or B, it goes down for the first 5 years to 1 and a half dollars and finally, the next 4 and a half years it gets back to $6. Which is going to be 27% more value? Most people will pick A for sure.
But it's not true because if I take the 5 and a half years one when it's 1 and a half dollars and you're putting in 100, you're going to buy 70 shares. The other one is going to be about $10 and your $100 is only going to buy 10 shares. So, on the next page in his book he shows you how you can be 27% better if you buy if your fund actually goes down. And there's going to be corrections. And they are going to be up and downs, and don't look at it every day or you'll have a heart attack. And I don't do that. Now, the next one is page 209. And there's this vanguard 50o that you could, if you want passive investing, you don't want to make decisions about your thing. But you can still go to the Mutual Fund Store and they'll watch it for you every day. You cannot buy and hold. There's no question about it. When I was a younger man, you could buy IBM [inaudible] Minnesota Mining and put them in the vault and they'd be good forever.
Not anymore. And you can't stay with your mutual funds, know your mutual funds is what he's trying to tell you here. So, on that particular page, you've got a probability of making 16%. Now his fund, the fund A here is his growth fund, Mr. Stowers, American Century. Five years, the probability is 54 for fund A and 35 for the S&P, meaning that the fund A is 54% better. But look at 20 years, you're 139% better. So, what he's saying, it's better to have a good mutual fund then to take the passive approach of buying Vanguard 500. Okay? The only problem is it's pretty darn hard to find good mutual funds that are doing 16%. Okay. Now, then, here's the rest of my strategy, you can read it later. But it says, I stay fully invested, I can't guess the market. I don't know why the market went down in the last 6 weeks. And I don't bother with it.
I know that over time it's going to seek new highs. And the dollar, in the meantime, is going to continue to erode and that's your biggest enemy. And I cannot I don't buy and hold. Do not watch daily, you'll have a heart attack. I do not rely on investment advisors. If they're so smart why do they have to work? Now, I do pay attention to Adam Bold, Suze Orman and Peter Newman. He's on at 10 o'clock on Saturdays 980. And Peter Newman's on at 11 o'clock 980. Those are good advice they've given you and Suze Orman gives you good advice except for one thing. And I think Adam and I agree on this, on many things we do. She says, you shouldn't be investing until you have all debt including your home paid off.
And I say, and his book says the same thing. The home, you have to have a place to live. And the home you can deduct the interest which is an important thing. And it always appreciates. When I got married in 1946, July the 4th 1946, the second year we bought our first house for $44 a month. But the prices, and we've kept buying 5 homes and every home is more money. And price of homes keeps on going up except, in the last year, like I used to have alpine real estate mutual fund. It hasn't done so good. It reversed its thing. Anything that's hot today may not be good tomorrow. And it may be better to get look at it and get out and go get something else. Don't wait for it to come back, for goodness sakes. I know people that are still waiting for technology stocks or mutual stocks to come back to their 1999 all time high. And if you remember correctly, 1999, the reason everything was so great and rosy was because they told you that when we go into the year 2000, if you don't spend $5 million or billions of dollars on your computers and all that, it's all going to blow up or something. But it didn't happen when we went into 2000. But the other thing was, all of these corporations that were falsifying their records, now they're going to prison on it.
And then we had a bad 2000, 2001 and 2002 years. I believe most people will outlive their retirement funds with no social security or Medicare or company pension plans. There's no question about that. Pull out this other piece of paper that I gave you from the Fortune magazine. It's called "Your own" And "That's okay." Pull that out. But here's a magazine by Fortune. They spent it's a special issue they spent this whole issue on telling you you cannot afford to retire and you better take charge of your retirement. Don't leave it to anybody else, your brotherinlaw, your broker or whatever. And that's what it's talking about. And look there, there's some things on that. Just realize that United Airline's got permission from a judge to default on $6.
6 billion a pension plan. Just like that they wiped it off. The next thing is the government's pension benefit guarantee. I'm reading right from that first page, it's "Your own", okay? And it says, "The pension corporation picks up some of the burden when companies like United fails and is need of a taxpayer bail out itself. President bush said that our Social Security in is danger and we really need to fix it now. And there are certain ways you can fix Medicare and Social Security. And they were listening to me but they don't, the politicians, is pathetic. They should raise age from 65 to 75, 65 was okay in 1933 when Roosevelt was going through getting out of a depression. But right now most people can work till 75. And the second thing, on like, Medicare, you should have $100 deductible on the darn thing. And raise the rates that you have to pay on Social Security and Medicare now. Okay? That's better than letting it go there. And then Ford announced that Ford announced that it was suspending matching contributions to the 401(k)'s of its salaried employees. So, some of you people are getting 401(k)'s with your employer that aren't the size of Ford.
And how do you know that they're going to have that there? And then there's two good things about 401(k)'s and I'm not saying you shouldn't go into them, but it's before tax dollars and companies were matching. But they're getting away from that just like Ford said here. So, those are the two major reasons to be in it. But the disadvantages are at 70 and a half you have to pull it out like your regular traditional IRA and start paying what you deferred the income taxes on. And the other problem with 401(k)'s, they don't give you a good bunch of family, they pick one family to invest in. They don't give you anything really good. There's 12 thousand to pick from of which there's 120 good ones. So, they don't use those. Whatever salesman came in and sold them a song and dance is what they use. Now, the next page, there's more things underlined but I suggest you really read this portion of it because I want you to take charge of your retirement. If you're a widow, you're a woman, investing is a terrible mindset by most people.
They think it's only for brokers and men. And they're not the smartest, I can tell you that for sure, okay? Okay, now then I was down on this thing here. I was down to number 7. I believe people should pay off their debts, credit cards and so forth. Five minutes? Man, it seemed just like a minute ago. Anyway, read the rest of it. It's all there that you could take it home and go over it. Now the next thing I want you to pull is my article on, I turn this out every quarter. Now, anybody who gives me selfaddressed envelopes, I send this to them. I spend a whole day once a quarter, I go to the Wall Street Journal, I go up to the hen house for $1.07. I got to get there by 7 o'clock or they're sold out. Okay? And I go through that and get all my statistics, give them to my gal, Trish, and she figures out my weighted scores and the ranks and average rank. And that's how I know the rate of return, which ones I want to keep.
Which ones if I can find a better one I always replace it. I don't hold onto it. But there's my record as of us March 31st, 32% on the big 10. Now, I didn't hold the big 10 all of that 5 years because I keep changing. I started with 4, big 4, big 6, big 8, big 10. Now I'm into excuse me big 13. The first paragraph, incidentally Mr. Stowers says, "Norman, nobody's ever going to read it. You've got to have a magnifying glass." And so I wrote him back, he's 85, I'm 82. He was in World War II I was in the Marine Corps. He was in the Air Force, he lost an eye. And he beat out the prostate cancer, and his wife beat out the breast cancer and that's why he started the Stowers Institute for $5 billion he plowed in there. So, I wrote him a thing and I said, "Sex after 80." And I sign my name and I send it to him. And I said, "How's that?" But he never answered me. So, the first paragraph I always change what I am doing new. And I don't tell you what to do, I tell you what I'm doing. If you want to follow, you can.
And then I have the next paragraphs are all of good principals of good mutual fund and investing. And you'll find it in his book, Bold's book. But the Roth IRA, why do I like it? You could read that. But especially, if you believe number 8: If you believe you have plenty of financial security consider if you live past 100, costly medical expenses and 3.1% annual inflation. Number 9: Don't rely on Social Security Medicare which may not be in existence. You cannot afford to completely retire. Anybody's that's 65 to 75 to 85 can answer the phone at an office during lunch time, make your $5 thousand and keep building your IRA Roth, okay? The next paragraph are the 4 principles. But I have a goal of 40%. It's part of the plan that he's talking about.
And consist in savings of $416.66 cents a month, which is 5 thousand. Why I like mutual funds is, in the next paragraph, you get expert daily management. I can't, and each one of my mutuals, my 13 mutuals has about 20 different stocks. I'm into almost 13 times 20 is 260 stocks. I can't keep track of 260 and I don't have the time to keep track of technology or the banking finance market or the medical science market and that sort of thing. I don't have that kind of time. So I'd rather pick a good, mutual funds that I've had good advice from their managers. Now, here's how to choose mutual funds, I won a 3year history of steady management with good ROI of at least 20% over 5 years. But there's 4 other things, I want medium size. I don't like funds that are over $10 billion. I want them to be invested in blend, meaning they have, in their perspectives, they can go for value or growth. A value manager will buy some stock and if it goes up or down 10%, he sells right away. Growth investor will hold onto it longer. So, I want the one that's in between the two or both.
And I want them to diversify into any cap. Large cap and so forth. Cap is the price per share and the number of shares. Down at the bottom is a very good thing, table. If you take $100 a year and invest it for 30 years, you will have put away $3 thousand. But if you go over to the 20% column, it'll be worth 141 thousand at 3 thousand. But if you put away to that $44 thousand a year, which is the most they allow if you're under 50, that'll be 40 times the 3 is 120 thousand invested and you will have 40 times 141 thousand is $5.7 million. Now, and going to 20 years and so forth, anybody can build, become a millionaire within 20 years and a multimillionaire in 30 years if you just get started on your plan. Now, turn over on the back, real quick, I'm going to show you, this is my history. I started with Sir John Templeton. He's 92, I'm 82. He lives in the Bahamas and he's got a foundation worth, and he gives away $100 million a year to charity. Anyhow, he and I were in YPO together, Young Presidents' Organization.
He got me started in mutuals. I've been in every kind of investing, stocks, options, real estate, all of that kind of stuff. This is the simplest and the safest is mutual funds if you know if you follow my advice. And if you don't follow my advice, I'm going to tell your another on you, okay? And if you don't follow my advice, or Bold's advice, when you're 85 years old, you go to, you commit a federal and you're out of money go commit a federal crime and go to a federal prison. Thank you very much. Okay. Now, what have you got, questions? We got a stack of them. Thank you, Norman. We are ready to move ahead with our question and answer period. Keep filling out blue cards if you have not yet done so and if you have questions for Norman, after that presentation, we'd be happy to collect those as well. But I want to introduce Dr. Joe Sopcich. He's here for our question and answer period. And he's my boss.
He's going to do a great job. So, take it away. Thanks, Emily. You know, I don't know about you but after listening to Adam remind of every bad investment decision I've ever made, and Norman telling me I'm going to be 120 in destitute, I think I'm going to go home, turn on CNBC and throw up. As I was listening to Norman I was wondering if he says that men aren't that smart, why Norm's up here and Elaine's not. Next time I'm not coming unless it's her. Okay. Here we go. Once again, everyone has given us some wonderful questions. And we're going to take these and see how many we can get through before Emily tells us we're done for the evening. The first one, and this could be for both of you. I'm 74, is this too old to begin investing? And if I start, what would be the minimum amount and whom do I start with? Okay.
The answer is no, it is not too late to start. Where to start? You know, at 74 years old, the way I look at it is, for most people, when you get to that point in your life, you're at a place where you go, "Okay. I've got" for the most part you've made your nest egg. You've got the money that you've got to live on. Okay. Now, we want to, A, make sure that you have enough money to live on every month. And if there's extra left over, then let's figure out how to grow them. Because one of the things that Norman was talking about earlier is that, you know, people will say, "Okay. If I have" just for the sake of illustration, If I have $100 thousand and the bank will pay me 5% interest, that's $5 thousand a year. I can live on that. But the problem is that ten years from now it's going to cost more than $5 thousand a year to buy the exact same things that you're buying now. And so, you've got even at 74 years old, even at 84 years old, you've got to have a growth component. You've got to have something that's going to help keep you ahead of inflation so that you can continue to buy the same things that you're buying now.
Where to start? There are funds, for example, one of my very favorite funds, the fund I talk about a lot is a fund called the Excelsior Value and Restructuring Fund. That fund, which is, incidentally, the symbol for the fund is U as in uncle; M, Mary; B, bravo; I, India; X, Xray; UMBIX. It's a no load fund, they'll let you start with as little as $250. You can add as little as $50 at a time after that. What he owns are large high quality U.S. companies. And he, David Williams, the manager of that fund has beaten the overall market for the 1, 3, 5, 10 and 15year time rises. No guarantees, but certainly the odds are a lot better when you go with somebody like that than if you go with somebody who's consistently done poor than the market. I'd like to add to that. Anybody that gives you advice when you're 65 and retiring, take your investments and put it into government security. That's absolutely wrong. It depends upon how big a nest egg have you built. And if you really don't have a good nest egg, you really should be into the mutual funds and taking some of the risks.
But you'll be much better off. You've got to cover the inflation sort of thing. So, if you're going to go to any advisor, you've got a thing there that says, how safe is the stock market? One of my pass outs on the last page of that thing I read from Fortune. And it tells you that it always seeks new highs there. And you've got to be in things that are going to take care of your needs that he's talking about. There's no question. Now, I've got there's a fund here of my 13 is called, U.S. Global Resources. That's energy. [Inaudible] faith in the world or any kind of energy, wind, oil, the whole works. And they will take it's got a footnote there. They will take there's no minimum for an IRA, traditional or a Roth IRA. You can start with $50 a month but then do like he says, as soon as you can go to 100, do 100 then go to so forth until you can get up to $416.66 a month, which is your 5 thousand maximum you can put in your Roth IRA. And in 10 years, you'll have about a million dollars.
Okay? 20 years for year. But if you're 74, if either one of your spouses pass 65, one of you is going to live, you have a 50% that one of you is going to live passed the age of 100, did you know that? All right. Adam, this one's for you. Earlier, you spoke about Edward Jones and Pioneer Financial in rather insightful terms. And this is quite a few questions on this one. How do you and your staff make your money? You ever seen those guys by the side of the road under the sign? No. The way that we make our money is that we charge our clients a fee that is equal to a small percentage of the value of the accounts that we're managing for them. The most that we ever charge is .375% per quarter, which works out to 1 and a half percent a year and then it goes down depending upon the amount of money that we're managing for you.
So, the reason we do it that way is if we make one change a year to your account or 100, we get paid exactly the same. If we the only way that we can make more money is if we make your account grow and we get our same percentage of a bigger number. And one of the other things is from a conflict of interest standpoint. We have, as our corporate policy, we do not take any money from any mutual fund companies. So, I get no fees, no subsidies, no advertising, no marketing. You'll never hear me doing commercials for mutual fund companies. And believe me, I get offers all the time. The mutual fund companies offers free trips, we don't take those. I don't even take free golf balls. I don't take free lunches. I don't take anything so that, you know, when I make a recommendation, I can't guarantee that it's going to work out the way I thought it was going to work out.
But I can guarantee that I'm making that recommendation because I think it's best for you and not because there's some sort of hidden agenda that you don't know about. And that's true, we've offered Adam free tickets to the theatre here and free meals and he wouldn't accept anything, so. By the way, I'd like to add something else. About five weeks ago I heard on his program, somebody asked, "Well, if you're going to give me the advice on the program, why do I need to invest with your company?" Tell him what your answer was. Well, first of all, on the radio show, you know, when somebody calls the radio show, I've got like 5 or 10 seconds to find out all that I can about them to be able to answer the question as best I can.
When you come to the Mutual Fund Store we're going to spend an hour, an hour and a half, we'll be finding out all about you. We, obviously, can find out much more in person than we can on the radio. The second thing is that, certainly, I don't give out all my best ideas on the radio. Our clients get our best ideas. Number 3, there's a lot of funds that we own for our clients that are load funds. But we get to buy load funds with the load waived as if they were no load funds. But I don't talk about those funds on the radio because the average listener is just going to do it themselves, can't go buy those funds with no load. So, I only talk about, you know, we have probably 40 or 50 funds on the list that we use at any one time for our client accounts. I have probably 7 to a dozen that I talk about on the radio. And most important, you may not be listening, next week he's changing his mind to get out of this fund and you may not have heard that.
So, it's better to have one of his advisors watching your account, right? I should get Norm to do the commercials for me. This is great. Okay. Norman, here's one for you. Kind of on the same topic. The top mutual funds differ quarterly in each newsletter. Who has the right answer? My quarterly fund? Yeah. Well, look on the back of my article that you've got there. It's got who I had, and see at the beginning, and then who I had and where I am now. And I generally do not replace a mutual fund unless I can find a better mutual fund. And it's very hard because if a fund is very good, it gets a lot of money in. And they close the account to new accounts. So, and it's very difficult to find funds that are going to be better in the different markets now. Some of these are global called global. And some are called energy.
Some are called gold. And I say in my first paragraph, they have been red hot here in the first quarter of this year and anything that's red hot, you have to pay special attention to because they can be the losers in the next year, okay? So, I've studied for a whole day, every quarter. And then I write my articles, send it out to my people. That's great. Thanks Norman. Adam, are you the tallest mutual fund manager in the business? Tallest? Yeah. I don't know about the tallest. How tall are you, first? I'm 6 foot 6. There you go. And but I'd like to think I'm the smartest in my humble opinion. In the Jewish Chronicle there's a picture of him standing behind me and everybody wanted to know if I was sitting down. Okay, Adam, here's one. If your home is free and clear, is it ever proper to put a mortgage on it to invest? The answer to that is maybe. And I'll tell you why. There's a math answer to that.
And then there's another answer. The math answer goes like this. If you have when you borrow money on your house. When you have a mortgage, so let's say $100 thousand for the sake of easy math here. And you get a mortgage at today's world, I don't know, 7%. And you're paying 7 thousand dollars a year in interest. Okay? However, that 7% interest is tax deductible. And so, after taxes, your net cost of funds is maybe 4 or 4 and a half percent. In other words, you get a tax deduction of 25 hundred. So, you're left with maybe 45 hundred, about so. Basically, it's costing you $45 hundred a year to have that 100 thousand dollars mortgage. Now, the question is, can you earn more than 4 and a half percent. Okay? And if the answer is yes, let's say you can earn 10% for the sake of of this illustration. Then you would have $55 hundred a year that you were earning over and above the interest that you're paying the bank on your mortgage.
So, if you can earn if you think you can earn more than what your net cost of funds is, then it makes sense to have a mortgage. And now, that being said, there's the other thing. And that is, there is a peace of mind that comes with having your house paid for. To be able to go to bed at night and to know that your house is paid for. Okay? Now, that peace of mind is worth different amounts to different people. To some people, if I went to them, I said, "Look. It's going to cost you $55 hundred a year to pay off that mortgage. That's the extra that you could make by investing the money rather than having to pay off the house." Some people would say, it's worth it to me to lose that 55 hundred a month to know it's paid off. Norman is going to say, give me the 55 hundred. Okay? And he knows that that 55 hundred is going to compound over a lot of years. That is an intangible that you can't really put a price on. So, there's the math answer, which is, sometimes it is prudent to take that money and get a better rate of return. But only if it feels right to you.
Another thing, on the peace of mind, I think if your mortgage is paid off, I don't think if you declare bankruptcy, they can't take your house away. True. That's another [inaudible]. Some audience participation here who is [inaudible] okay. Yeah. All right. Can we get a couple more chairs up here? Thanks a lot, we appreciate it. Okay. Here's one. Is the recent downturn in the market soon to be over? That's why you all came here this evening for this very question. You want me to take a crack at that first? That may be a [inaudible]. I told you that in October of '87, it dropped 500 points in 1 day. And it got over that by the end of the year. Sometimes it may take, like, we've had 3 bad years, 2000, 2001 and 2002 that we lost 42%. It took 3 years to get over that.
And before that, there was a 71, 72 that it lost 20, about 30%. And it took 2 years to overcome that. So, look on that thing, how safe is the stock market and it'll show you. And who knows when it's going to come back on this time. But over time it will come back. Let me answer in a different way. I think we're just about over. I think that we were overdue. We had gone more than 800 days without a 10% correction. Now, nobody wants corrections. But the way I look at it, you know, when you look at the last bull market that we had that went from 1982 to 2000, it lasted for 18 years. And when the S&P 500 went from 150 to 15 hundred. So, more than 10 times its value. So, when you look at that, when you look at the chart now, it looks like the market did nothing but go up for 18 years.
But the reality is, there were more than a dozen times during that 18 years where the market went down by 20% or more. And so, you know, at the time, you can always say it's different. I know, this time, you know, the Iranians are building nuclear weapons and, you know, we've got a president who's got low approval ratings and, you know, gas prices are high and whatever. It always seems different when it's going on. But with hindsight, you realize it really wasn't that much different than it was in time's past. We were due for this. I contend that if we're going to have a sustainable bull market, a market that's going to last for another 18 years of going up, we have to have these things from time to time. It's kind of like having a physical. Which I have to have in the next couple of weeks because my wife's making me. But, you know, having a physical is no fun.
Okay? They probe you. They prod you. They stick you. It's humiliating. It's embarrassing. But it's one of those things that it's uncomfortable while they're doing it to you, but you're better off in the long run. Well, that's the same thing that this correction has been. This has been one of those things where it's allowed the market to digest. The gains we've had 3 years of nothing but up. We've digested those gains and now we can start to move back up again. Whether it ends tomorrow or a week from tomorrow, or a month from tomorrow, I can't tell you. But I don't think things are going to go much lower than they are right now, in my opinion. I'm going to add to that. If you'll read my first paragraph in my letter, I said that it's my mutuals went up so much in '05 that starting in December, January, February, March and through April, I started selling the difference between the market value and the cost basis.
And I took that money and I bought those new 3 and now I'm into 13. So, I'm getting more diversification. In fact, I'm sitting on some cash right now, I'm trying to decide which ones I'm going to buy. And I want to get in and buy now. And so, I have faith in the fact that over time it'll still seek new highs, I believe in that book. All right. Here's another question. Adam, why did you move to Las Vegas? Do we have a stalker in the audience? Well, let me first of all, does anyone in this room who work for the Kansas Department of Revenue? Okay. I am a Nevada resident, my wife and children. By the way, today's my 19th wedding anniversary. Yeah. Thank you. That's 19 years in a row to the same girl, which I'm pretty proud of. And, of course, I'm here and she's at a volleyball game with my daughter right now. My wife and children are Kansas residents.
The bottom line is that some day when my kids are gone, my wife and I would like to retire to Las Vegas, so we bought a house there. We spent a lot of time there. Nevada does not have a state income tax, which is a very convenient and nice thing to have. So, I divide my time between Kansas and Nevada. But I'm here to tell you, I'm fifth generation in Kansas City. My kids are sixth generation even though I am a resident of the State of Nevada, this will always be my home. I thought it was going to be because the dry heat. You know, I was out there last week, and, you know, they go, oh, it's the dry heat, bologna. It is God. I put my arm on the window of the car and I still got a scar right here from it being so hot. Okay. Norman and Adam, both. What is a good way to pick out significant points in a perspectus, what to look for, what's the key points in a perspectus? I don't even read them. They tell you all of them, we try to buy low and sell high and all that kind of stuff.
And it's a bunch of malarky. Anybody do we have any perspecti writers in the audience? Let me just address perspecti for a moment. There was a bill before Congress 2 years ago that has absolutely gone nowhere. I've been a proponent of this bill for a long time. And it was the Mutual Fund Simplification Act. And basically, what this was going to be was, they would have one page on the front of the perspectus that would tell you in very simple words. And my rule was, if I was in charge of no word with more than 3 syllables, okay? And let me tell you, this is how much it would cost to own this fund. This is basically what the manager I try and buy stocks that are between $10 and $20 a share. I try and buy stocks that are, you know, whatever. Gives you a little educational biography on the manager, what their experience level it.
One page that the ordinary person can understand. Now, the rest of the perspectus is there. So, if you're a detailed guy, you're an engineer and you want to read all you're a mutual fund geek like me. And you want to read the stuff in the back, it's all there. But I say, you've got to because what they keep doing is, they keep putting more and more information in the perspectus, which makes it less and less likely than anybody will ever read it. Which you really have to if you're only going to read one part of the perspectus, there's a section that is called "risks". Is that the thunder I'm hearing? And that's where you read it. And that's what you read because that's where they'll tell you, you know, and you're going to have to read a lot of stuff that's written by lawyers, the flow.
But if you read the risk paragraphs, you're bound to get to what the serious concerns are. All right. Norman just asked me if that was thunder outside. And we're a little jumpy up here when it comes to bad weather because we had a seminar one night and a big storm blew through and sparks were literally falling from the ceiling in here and we had to have an emergency evacuation. So, I just want to, for you all, to rest assure that there's no thunder storm outside. I want to add to that though. Mr. Stowers, before he went on he told me, I'm going to scare them that they're going to outlive their money. And I'm going to scare them, so when the lightening hit, we had to leave. So, the next day I wrote him a letter, I said, "Boy, you sure did scare them, but how did you get God to do that?" Okay, Adam, here's one. How do you suggest selfemployed people prepare for retirement? As more carefully than people that work for someone else.
You know, the bottom line is it's the same thing, you've got to stock, whether you're selfemployed or whether you work for somebody else, the key to building great wealth is to saving small amounts of money on a regular basis over an extended periods of time. And I will tell you, you know, selfemployed people, when they're successful, you know, they're always good at investing money. It's when you're starting out and then people go, "Oh, I don't have enough because I barely have enough to make my payroll." And believe me, I've been, I've started, Cheryl Donovan, incidentally who's here, who was my first staff member. She and I started, you know, I started the company in the basement room, office building on College Boulevard. And literally, we were in the basement of this building and now we've got offices in 42 cities.
You know, I remember having to, you know, charge on credit cards to make payroll. And I remember sitting down and trying to figure out which bills to pay, you know, this month and which ones that, you know, we can put off just a little bit. But when you get to that point where you kind of get past that first danger curve in the business, you know, whether it's a simple, a set plan. Whether it's a simple IRA, there's a lot of different ways, you know, you need to sit down with an accountant or with an investment advisor, somebody who's going to help you decide what's best for you and your particular situation. But the key is to do it. It's always easier to put it off. But you can, as Norman pointed out earlier this evening, you know, you can do with a dollar today what it's going to take you $5 to do ten years from now.
So, the key is to start saving it now. Right. Now, Norman, when you started fixtures, were you thinking about retirement? I started with Fixtures Furniture with one coat rack and one employee and I never had a negative financial statement. And I kept on building until I had 400 employees and doing $30 million and just working hard and I was an entrepreneur. And you keep on building. And that's how I made my real money. And then I'm investing. But I had to go along the road and learn real estate wasn't so good in 1986. The Tax Reform Act almost killed us. Okay. Okay. I think that's about all the time that we have for questions. Unfortunately, we're almost at the end of our time. Aw, that was nice. But we do have cookies and punch and coffee in the lobby and it'll give you an opportunity to corner the panelists out in the lobby after the program for a little while. So, we will offer that to you. If you have your green cards ready, 100%, 100%.
Please hand them to the ushers on your way out or there are boxes outside. And then I have a couple more things to tell you before you leave. There are two books outside, Adam Bold's book, The Bold Truth About Mutual Funds. As well as the Jim Stowers book, Yes, You Can Achieve Financial Independence. Both books are $10 tonight. That's much less than they sell for in the bookstores. So, save yourself some money. Get some great information. Stop by the table on your way out. And as Norm said, great Father's Day present. So, go for that. We also have an overview of our series that we did 5 years ago. The programs that we did last year in 2005 and some information about cruising with Peter Newman and talking about financial planning at the same time, which is still just an amazing concept to me. So, meet us in the lobby, we'll see you soon and hopefully come back on September the 6th with Eric Morgenstern. Good night.
Thanks for coming..