this is jim cramer. welcome to my world. >> you need to get in the game. >> they're nuts. they know nothing. >> i always like to say there's a bull market somewhere. >> "mad money" you can't afford to miss it. hey i'm cramer. welcome to "mad money" and cramerica. other people want to friends. i'm just trying to teach you how to make money. my job is not to entertain you, but to educate you. call me at 1-800-743-cnbc. it is my job to protect you from making the worst mistake out there, to coach you into being the best investor you can be. sometimes that means defending you against the conventional wisdom, not just on wall street but the kind of bogus, common sense, conventional wisdom you'll hear all the time from

your friends and from the punditocracy. somehow these people contend their knowledge that they are intellectually superior to the rest of us. they decided that ordinary people like you shouldn't own stocks. they think it's irresponsible to pick your own stocks. that you're stupid. that you're stupid for watching. and that a certain corollary that anyone who tries to help you manage your own money like me is the worst kind of fraud, someone who deserves to be tarred and feathered and ridden out on a rail for trying to help you, trying to do something that they regard as harmful to yourself. they say it's impossible to beat the market. regular people should invest in low cost funds to try to mimic the market. you may not beat the market but unlike all those numb skulls out there, picking stocks like that buffoon cramer, at least it won't beat you.

no. that's hog wash. and just like a hog if you listen to this piece of conventional wisdom you will get slaughtered. somehow in the 21st century when increasing personal autonomy is all the rage when we have an endless, nonstop worldwide garage sale on the web, when every day everywhere in all aspects of our lives we're encouraged to think for ourselves, the so-called responsible people think that in just one area, managing your own money, things should be left to others, to the experts, or to the index funds. doesn't that sound nuts when you think about it like that especially after the experts have so fantastically and publicly dropped the ball? i said this before. i'll say it again. you care more about your money than anyone else. this is not heretical. it just seems like it because of the nonsense you hear. your fund manager, your broker, they care about getting a piece of your money. that's why the common sense consensus that individual stock picking is for losers is so good for wall street, bad for you.

make no mistake. companies practically print money with these index funds even if the fees are low. they love it when you hand your money over to them and take their cut. they're good at taking their cut. that's their job. me? i believe you can do it yourself. i don't want your money. i don't want your fees. i don't want your commissions. arguments against what we do here do not make a lick of sense. it's never been a better time to be your own manager. commissions have never been cheaper. information has never been faster or easier to access your computer you're on. if you want, you can do it all on the web. we're living in a world where anyone sitting at anywhere can instantly pull up more valuable information about the market than say how about jp morgan, the man? more than he could learn in his entire lifetime is at your finger tips. somehow, two big ideas gained widespread acceptance, you know, the one that came crashing down in 2008? first there was the idea that

everyone should always own stocks all the time but at the same time so many so-called experts would tell you no one should invest on their own. isn't it pretty clear both these ideas have been discredited? here's the thing. everybody talks about how the first idea, that you should always own stocks, seems to have failed spectacularly. nobody is pointing out the failure of the second idea, that no one should invest on their own. that the safest, most responsible course is to keep your money in an index fund or a group of funds. sorry, friends. that argument is bogus. bogus is the one that says you should always own stocks all the time? no. do not get me wrong. index funds are terrific in their place. they're a valuable and welcome innovation for investors who don't have that much time on their hands or much interest in picking stocks. everyone should be aware of them and there are plenty of times when owning an index fund is the right choice for an investor who wants some exposure to stocks

but it doesn't mean they're the only appropriate way for regular people to own or if you're an idiot if you try otherwise. that isn't the consensus among the pundits though. they think watching the show is wrong. watching it is wrong because it gives you control. they think that if you're not a professional you can't handle it. and anyone like me who tries to help you is aiding and abetting dangerous behaviors. is that what it is? dangerous behavior? you think that? why is this transparently bogus consensus emerging? first, most people who pontificate about stocks and investing don't really know much about these things. there's no reason why they should. usually they've never done it themselves. let's be honest. if you're someone who knows how to make money in the market you don't usually become a commentator. i'm an oddity, a freak, not just a freak that i play. a guy who left the hedge fund business, who was running a half a billion dollars after a terrific run, because i knew that some day it would, well, it would be cataclysmic and give me a heart attack. most of these people are casual observers and don't claim to

have expertise. just good old common american sense. how difficult can it be anyway? everyone knows about stocks. that's exactly the argument that annihilated the portfolios of all the people who believed timing the market was impossible. individual investors picking stocks on their own on the other hand could have saved themselves fortunes by getting out when i said sell at 11,300 on the dow back in september of 2008. again, at dow 10,000 on my today show appearance on october 6 of 2008 when i took my whole career and put it in the hands of the market because i had that much confidence. and i was right. there's a total legitimate case for index funds too and that's what makes this defeatist argument so compelling. there is a grain of truth. in essence the case for index funds is it is very difficult in fact maybe impossible to beat the market. why try? empirically i know that's not the case, but in the right context, it's not a bad argument. it didn't start out as a case against managing your own money but against professional mutual

fund managers which we agree with. most actively managed mutual funds don't consistently beat the market. if you're turning your money over to someone else, why not put it in an index fund? that was the secret. i'm down with that. actively managed funds is a class with very few exceptions, the worst type of investing because there's an inherently misleading aspect to the way nearly every one of these funds operates. i know this. i was a professional. who's going to -- most people assume a mutual fund will get out of the market if the professional managers think there is a serious risk of the market falling. that is just untrue. a pro can't afford to under perform against his competition. the key words in that sentence being not under perform but against his competition. that's the other guy running it. in practice that means almost all mutual funds stay almost fully invested almost all the time. no one can ever be sure if the market will be rising or falling. that's what they think.

a fund manager can't miss any of the rises. that's how he gets fired. all his competitors will have made money when he didn't. if the market falls, they all lose money together. so what? just takes a percent anyway. he gets to keep his job. so there's no real incentive for these guys to get out at any point. they never feel they have to sell. they think it's heretical. they're wrong. too many people have a false sense of safety with managed funds. you saw it in your account. you can't count on them to protect your money as they would their own. think they even have their money in? maybe. these guys rationalize it by saying if people didn't want to be invested all the time, they would not put their money into the fund. in reality, you're looking for them to help. you're actually better off with an index fund. there you don't have any excuse for thinking someone is watching out for you. but the case for index funds for holding up your hands and saying oh, the market's unbeatable just doesn't make sense. the same way when you're comparing with ordinary home gamers running their own money.

why should you do it yourself? well, first of all, we try to make it fun. that's not a sin though many people think it is. well, they're wrong too and you know that because you watch. we want you to be in control of your own money. most people didn't side step the market's huge sell from 2008 at the very beginning of 2008 but some people did. if you watched, you did. and you had the best chance of being one of them if you're managing your own money. not to brag or anything if you listened to me, you sold. you sold. started to get back in when it was much lower. you're not outclassed. the hedge funds have advantages but so do you. the big guys can't run rings around you. you'll hear people say that home gamers can't compete with the big boys in the arena without getting trampled but there is no arena. sure the big institutional investors got some advantages. so do you. you're nimble. trading billions is a lot harder than trading thousands or hundreds of thousands. you don't have to worry about the politics of professional investing either and you can take your taxes when you want to

not when they tell you to. the bottom line that's why i believe picking the right stocks and knowing when to sell, you, the so-called little guy, like i was when i started, can come out ahead. stick with me and i'll give you the best possible coaching i can give you to help you get there. ashley in minnesota, ashley? >> caller: boo-ya, jim. thanks for taking my call. >> my pleasure. thank you for calling. how can i help? >> caller: i have a stock that's doubled in price. now what do i do? do i let it ride? do i take out half? i'm not sure what to do. >> i tell you, i like to fall back on time-honored principles which i first articulated in "real money" which is now in paperback. i always say bulls make money. bears make money. and hogs get slaughtered. it is imperative upon you to be able to take some profits. you will never, ever regret taking profits. no one has ever regretted taking a profit. jonathan in massachusetts? jonathan.

>> caller: bubba boo-ya! >> bubba boo-ya back to jonathan. >> caller: i have just finished reading your book "real money" and would love to start practicing the skills you have set forth. >> i appreciate that. it was my handbook for when i used to run my hedge fund. i made everybody read it when they got hired. how can i help? >> caller: i'm pretty young and have limited capital. my question is do you recommend creating a practice account using a portfolio tracker or do you believe that the true practice would only come from buying actual shares? >> the problem is that i like people to get started with paper portfolios or buying one or two shares. that's how i started. maybe i'm biassed. this is a very intimidating process. you watch the show, you learn how to do the home work and while you do it, you don't lose a lot of money. i told my people when i started my hedge fund in a new area that we would do it like a rotisserie. i can't tell you to do it different. my suggestion is rotisserie and being in control of your own money. i think you can invest on your own. got to do the home work. got to keep watching the show.

but you'll keep making money. stay with cramer! don't miss a second of cramer. find each full episode of "mad money" on itunes and download it for free. take all of cramer's picks, pans, plus the lightning round with you on the go. get "mad money" on itunes today. for more info, go to -- want to get in the action, send an e-mail to "mad money" at --

i want to make you a better investor. ♪ hallelujah and the best way i know to do that is by saving you from making the same mistakes that i've made. i've made a lot of them. you might have heard about some in the press. that's why i make rules. they're not fun. they don't always let you take the quick and easy gains and

sometime they feel totally and utterly wrong, but that's the point. we screw up when we just go with our convictions not our discipline. that's why anyone who wants to be a good, long-term investor needs to embrace discipline. why? think of what discipline would have gotten you out, certainly near the top of 2008. it would have told you to take profits because you were being a -- [ pig squealing ] and would be -- it also would cause you to sell before the market's vicious decline. lots of people had conviction the stocks would work forever. what did it do? it cost them fortunes. >> the house of pain. >> even if you had the conviction tempering it with discipline would have kept you more safe. discipline comes from rules. here is rule number one. this is really important. i know all the time people say, cramer is a trader. "mad money" is a trading show. isn't it terrible how cramer encourages people to trade in and out of stocks. that cramer sets a bad example telling people they should trade. blah, blah, blah.

the truth is "mad money" has always been about investing, about helping you make money in stocks that will work for months and even years. but also keeping in mind that sometimes you do have to sell. you got to learn how to sell. sell is not a dirty word when you're in with the masters, just on tv when they tell you you should give the money to them. i'm not here to give advice to professional traders. they don't need my help. i'm here to help you. remember from the day i started this show i have said this business is too hard for people who don't have the time and inclination and i urged those of you who can't manage money yourselves, go ahead. buy index funds. if you have the time and i think you're watching the show so you do, i believe you can beat those funds. is it idle belief? i did. anyway, here is the rule. it's another one of the gospels according to cramer. my personal finance/long-term investing guide. if there is even a difference between these two things and i don't think there is, here's the rule.

i never want you to turn investment into a trade. in real money the first gospel according to cramer which is basically the handbook for the old hedge fund i had a similar rule. never turn a trade into an investment. what does it mean? don't turn an investment into a trade. vice versa. what does it mean? all right. so now we have to do a little defining. you have to know what the difference is between trading and investing. something a lot of people who mutter about how the show is corrupting the youth don't seem to get. a trade is when you buy a stock for some specific event. it's called a catalyst. you're betting on a short-term move. and when that move happens, you sell. sell, sell, sell. investing? completely different. based on a long-term thesis, not a catalyst. the idea the stock has the potential to work over a long time horizon. doesn't mean you buy and hold. we never do that. that's reckless. we always buy with home work.

if we can one hour a week per stock once we buy. that does not mean when you're investing you're not in it for a quick gain too. when i say don't turn investment into trade i'm telling you don't sell a stock you believe in for the long term just because it's gone up a lot. don't treat it as a trade and sell after something good happens. you're leaving a lot on the table. if you're investing you believe many good things will happen for stocks. selling it the first time it jumps in price means maybe you're getting out before the best gains, the ones you were planning on, have ever arrived. now, i know you'll make this mistake. because i've made it running my charitable trust you hear talk about. actionalertsplus.com. an example to explain the mistake i made is something most of you should understand. stock in question is apple. way back in 2004 my youngest asked me to get her an ipod for her 10th birthday. no big deal in itself. but i was stunned when she asked for it because i had already bought her an ipod for the holidays.

so naturally i told her that's ridiculous. but then she said something that gave me my long-term thesis in apple. she said she loved the blue ipod i had given her for the holidays but now she wanted a pink one. a pink one. here is where it crystalized. she said, dad, it's like having two pocketbooks or two pieces of jewelry. just because you have one doesn't mean you shouldn't have another. no one would get mad at someone who wanted a second piece of jewelry if you know that person loved jewelry. as i say in the book, it hit me like a ton of ipods landing on my head. the ipod is a fashion accessory. that's why the kids love it. that was my investment thesis. oh, my. i went through every piece of research. not a single one of them considered it remotely like that. none of them could explain how apple could keep selling ipod after ipod because everybody already had one. the market was saturated they said. they all thought apple couldn't keep selling ipods at the same pace because they couldn't think of a reason for people to be buying multiple ipods.

i had the reason. i always liked apple but now that i had my investment thesis i bought it, bought it, at 26 bucks. that was a long time ago. when the iphone was just a glimmer in steve jobs' eye. well, you know the history. i was totally right. apple quickly went up fivefold as people began to realize what i realized, that apple was fashionable and fashionable is what sells. here's the problem. shortly after i bought the stock, it moved up a quick five points. i sold it immediately. threw the investment thesis out the window. took the great trading game. instead of being jubilant as analyst after analyst realized what i had and the stock moved up to a hundred and 200 i was kicking myself for being an idiot. don't repeat my mistake here. if you know something is going to work for the long term, you have to be willing to sacrifice the quick gains. you have to hang in there. you can't just take the easy five-point win. that's wrong. >> sell, sell, sell. >> when you know there are 50

points to be had if you just hung in there and let your idea play out. here's the bottom line. that's why when you have a good investment you never want to turn it into a trade. by selling before your thesis has a chance to take hold and the stock goes much higher. ron in ohio? >> caller: boo-ya, professor jim. >> thank you for giving me tenure, ron. how are you? >> caller: i'm doing fine. how about yourself? >> not bad. what's up? >> caller: i have a question about dividends. here's the situation. i own about ten stocks and i wondered, is it better to have dividend reinvestment in each of those or is it better to get the money from the dividends and have all the money go into an account and then use that money to buy maybe a bunch of shares of one stock? >> no, no. that defeats the purpose of what i try to do which is to get the reinvestment of dividends is what makes the real growth here. as long as you like the stock you'll continue to get the reinvestment. if the company might cut the dividend we have to readjust. that's why we do home work. no. absolutely, ron, reinvest those

dividends. that's how we get the power of compounding, rule 7. a lot of these things are in my books. that's how you make the big money. bill in missouri. bill? >> caller: hi, jim. would you explain the difference between derivatives and what puts and calls and what type of companies are apt to use derivatives and what effect would it have on the price of the stock? >> okay. derivatives are a large group of different instruments that can -- that are either off of an index that trade relative to index or relative to a stock. puts and calls are part of the derivative family if you want to use that. a put is the right to be able to buy, a bet in favor of a stock going down and a call is a bet in favor of a stock going up. if you buy a lot of calls there is so much pressure, upward pressure on the stock it tends to go up but it has to be in the thousands. same thing with puts. you can knock a stock down buying puts. i have a very sophisticated chapter about puts and calls in the book.

"real money" if you want to know more. i don't talk about them on the show because they are very, very dangerous if done incorrectly. remember, never turn investment into a trade. never turn a trade into an investment. stick with cramer. >> we have been on a crusade on this show. >> you were one of the first people to talk to about the uptick rule. >> the s.e.c. tossed these stocks into a virtual free fire zone. >> i have to concede that in the kinds of environment we have seen more recently, that it may have had -- good it had been in effect, it may have had some benefit. >> i rest my case. >> want to press cramer's buttons, use the "mad money" sound board today. remember this one? >> they know nothing!

>> listen to all of cramer's famous sound effects at madmoney.cnbc.com.

i'm trying to educate you.

trying to educate you now so you can stay in the game for the long haul. ♪ hallelujah >> trying to be your coach, help you make money the best way i know how. >> that was easy. >> before you can make money you have to know how not to lose it. >> the house of pain. >> which is why right now i want to talk to you about protecting yourself from yourself. something that's never been more important. you know what kind of stocks i tend to get the most e-mails about? of course it's cheap, low dollar amounts, speculative stocks. little $2 to $10 numbers so many people think could be like their ticket to riches. now i'm not against speculating with single-digit stocks at all. i advocate, in fact, probably the only person who advocates it, a healthy ingredient in any portfolio. speculation is interesting, a lot more fun than regular investing and often keeps you in the game. i call it a game. why? because every single person who ran a billion dollars, every single person i've ever met who runs any money calls it a game.

it ain't my name. i can call it the mule. how about the mule? i can call it the love fest. all right? but they call it a game. it gets you to keep paying attention to all of your stocks because it's so fun. i also know caution is king especially when trying to build wealth over the long term. that's why i've created a new rule. a rule is always based on, yes, mistakes i've made that have lost me or my charitable trust a lot of money. that's rule number 11. uninformed low dollar amount speculation unequivocally can wipe you out. anybody bought citigroup on the way down as it went from $110 name to a penny stock as the financials were under perpetual siege from the short sellers knows exactly what i'm talking about. you watch this show for any amount of time, you understand the value of speculation. tonight i want to talk to you about the risk of speculation.

i want to tell you the story of the biggest single loss i have ever taken in my charitable trust actionalertsplus.com which is all for charity. this is a stock that cost me to not be able to contribute $130,000 to charity. and the name of the stock is charter communications. >> boo! >> i bought this debt-laden company, cable company, at $4 way back when i first started my charitable trust. it was going to be the speculative pick in my portfolio. everything about my decision making process when i bought the stock was messed up. it was distorted. and that was all for one reason. the mystique of the under $10 stock. i won't regale you with the tale of how i dug in my heels with this one for 18 months. because i've always felt 18 months is how long it takes for a good investment idea to pan out. i held on as the stock sank lower and lower and lower and eventually selling it for two bucks. i just want to explain where i

went wrong when i decided to buy the stock so you won't do it. it should have been clear from the beginning that charter wasn't worth owning. when we look at a stock with a share price under ten we get taken in by that mystique of the single-digit stock. what's that mean? you look at a $4 stock and think, hey, already down to four. how can i possibly lose? yes. i know that's irrational but it's part of the attraction isn't it? you have to know just because the price is a low dollar amount that doesn't mean you can't lose a fortune. remember how much i lost from my charitable trust. as i learned, it's easy for a $4 stock to become a $2 stock. and not with a stock split. and that 50% loss is the same as if we were talking about a $40 stock going to $20. multiply it by ten. there are a lot of stocks out there. stocks that have been crushed that trade in single digits. some deserve the new, low dollar volume amounts. you know, okay. right there. we know some of them do. some of them don't. but never believe that just because they trade in the single

digits they can't give you huge losses. here's another mistake people make when they look at these stocks. one i made with charter. you think that just because the share price is a low dollar amount that it's more likely to get taken over. irrational behavior. again, this is irrational because the companies that might buy these stocks know the same things we do. they don't care about the share price. they care about the price earnings multiple. which is the stock's true price. they care about the enterprise value. it's like a trick of the eye. it's a mistake you will make unless you know to watch for it. that's why you always have to apply tests whenever you speculate with a low dollar amount stock. i want you to multiply it by ten. if the stock price were $40 and not $4 and everything else about the stock and the company was the same, would you still like it? if i had done this with charter, which was drowning under its weight with debt, i never would have bought the thing in the first place and taken the biggest loss in the history of my charitable trust. >> the house of pain.

>> you have to do this because believe me no matter how experienced you are, you will be drawn in by the mystique that surrounds these stocks under ten. it's bad. with the under $5 stocks being the worst. if an experienced hand like me can get taken in by the mystique surrounding these stocks, anyone can. trust me. now, always remember when you're speculating with these low dollar amount stocks that no company stock ever falls below $5 because it wants to be there. companies don't end up with stock prices in the single digits by doing well. sometimes they end up there because the market is a harsh mistress. it takes broken stocks, takes them all the way down. broken stocks, broken companies alike. but you have to make sure you're going after the stock because you like the underlying company, not because you're attracted by the low dollar amount. here's the bottom line. as long as you know low dollar speculation can wipe you out, as long as you're aware of the mystique of the under $10 stock, then you don't have to be taken in by it and lose money as i did.

eric in utah? >> caller: jim, boo-ya from utah! >> boo-ya right back at you, sir. what's on your mind? >> caller: hey, i don't have much money to invest. >> okay. >> caller: i know cheap is a relative term on wall street. >> right. >> caller: but is there anything wrong with me building a portfolio from low dollar stocks as a strategy? >> yes. there is. because that tends to be a class of speculation. we favor diversification of which speculation can be a style. let me give you an example. it's okay to own a health care stock, tech stock and a defense stock and you can then add a speculative stock but you are viewing five of a kind. all speculation will produce a wipeout. that i promise you. that is not diversification. it's all one asset class, one sector, the speculative sector. low dollar spec plays can be enticing but also dangerous. so please proceed with caution. and stay with cramer.

download full episodes of cramer on itunes, get daily text alerts sent to your phone. with constant updates on twitter, you can get "mad money" anytime, anywhere. with the mr. clean

magic eraser. i said it before. i'll say it again. i make a lot of mistakes. >> the house of pain. >> i always get nervous when i say that because you're not supposed to admit that you make mistakes but isn't everybody perfect on tv? it's in the little handbook they

give you on the day you first go on air, right? along with the ifb with the tv gibberish, the thing you wear in your ear, that makes you look like a secret service agent. we all make mistakes, anyway. tonight my role as your investing coach, i'll try to prevent you from making some of the most commonly made blunders out there. blunders most of you might think you're too sophisticated to make and that's wrong. you're never too smart or too seasoned to make a bone headed, amateurish mistake. and i am, yes, living proof. that's why you need rules. you need to obey the rules. this goes for me, too. to prevent you from making the mistakes that come so naturally. i got a rule called love the product. don't love the stock. that may sound elementary. even insulting. of course you know that companies which make something great don't necessarily translate into good stocks but believe me. you will make this mistake like i have unless you're constantly guarding against it. this usually happens with tech stocks and with me it was no different. you have to be careful with these because they seduce you so

easily. i fell in love with a stock called citric systems in 2006. this is when i had my radio show "real money" and you have to know something about radio to understand why i fell so hard for this one. a lot of radio hosts like someone in their ear telling them the name of the caller and where they're from. i couldn't stand the chatter in my ear and didn't want to be distracted. so i went to my tech guys, the experts. they said they had a brand new solution. it was a product called go to my pc. it was made by citric that let me and the phone operator see the same thing on our monitors so i could just read the name of the caller without having anyone distract me in an ear piece. the difference was miraculous. i never heard of this product. i had no idea it existed. i researched all the public files and the company looked so strong so i leaped in and bought it for my charitable trust at $43, spring of 2006.

i thought everyone would adopt this great product. everyone who needed remote software. guess what happened? the next quarter the company reported a slower growth in the sales of this very product i was in love with. why? it turns out everyone who wanted it already had it. even though my tech expert said it was a brand new product, i was late in the product cycle game. i was at the tail end of the customer base. i thought i was being a vanguard. now if i thought a little harder about the product which had been around for three years when i bought the stock i would have known better. tech cycles are short. any tech product around for three years has probably peaked. after that it's all downhill for the stock. unless it is a new product to keep driving the stock higher. i had to sell it ten points lower. >> sell, sell, sell. >> the house of pain. >> not because i was wrong about the product. the product was great. but because i was wrong to think it was new. in the course of your investing career you'll be told by experts that they've just heard of this great new thing.

this happens all the time. it may be great. but you can't count on the experts to know if it's new. you have to check it out yourself. if it's not new, if it's been around for a long time, you're jumping on a band wagon about to go over a cliff. here's the bottom line. a great product does not make a great stock. and just because you just discovered something that's really good, that doesn't mean millions of other people haven't already discovered it. stay with "mad money". >> he has no idea how bad it is out there. he has no idea. he's nuts! they're nuts! they know nothing! where the heck is the s.e.c.? what are they doing? how can we have these levels of fiction in financials after sarbanes oxley? how do people get away with this? i'm taking on a special mission tonight, it is a hurtful one, a socially suicidal one. i'm about to get myself banned from every single good party in new york metro area.

>> don't get mad, get even. more "mad money," catch cramer at 6:00 and 11:00 eastern on cnbc.

♪ ♪ i got troubles, oh ♪ but not today ♪ 'cause they're gonna wash away ♪ ♪ they're gonna wash away ♪ ♪ ♪ they're gonna wash away ♪ this old heart ♪ gonna take them away [ quacks ]

let me give you three words. three words that are sure to put any audience, even one made up of my own 64-year-old demographic to sleep. "retirement, 401(k), and i.r.a." we think of these things as the boring part of investing but let there be no doubt. when it comes to managing your own money, nothing is more important than making sure you've got enough dough to retire. young people, that may seem far off. i feel like i was 20 just yesterday though. believe me. you don't want to spend your golden years eating cat food or dog food when you could have eaten caviar, eaten fancy feast when you should just be having a feast. but if i'm going to help you try and be the best investor you can be i know i need your attention. that's why i come out here every day with the bozo the clown/soupy sales routine so many people try to write off. the fact is i'm really just trying to make maybe the most boring subject on earth interesting.

that's what every good teacher ever did for me. right now i won't talk about retirement. i'll talk about dodging taxes. that's what 401(k) plans and i.r.a.s are. the staples are retirement investing is dodging taxes. you don't pay taxes on the money that goes in. you don't pay taxes on dividends and capital gains as long as you keep them in the 401(k) or the i.r.a. you could put off paying taxes on all your gains for 30 years or more. imagine how that compounds until you finally withdraw your money. then it's just taxed as ordinary income once. 30 years of untaxed gains. if that's not mad money nothing is. i'm not here to talk to you about the ins and outs of retirement plans. we've been over those before. you probably already know the details. no. i want to tell you about your 401(k) i.r.a. secret weapon a kind of stock that should let you build up so much tax free money in your retirement account you'll be putting up my picture on the wall and kissing it every night. something i already do 45 minutes before i go to bed. i know i've got the republicans in the audience happy. even the democrats who support

taxes in principle don't like paying them. what's my secret weapon? you know that with most stocks that pay dividends you only pay a 15% tax on the dividend income. by the way, my old partner larry kudlow i take personal credit for the dividend tax cut as we pushed and pushed for it every night on the old kudlow and cramer days. next time you want to blame someone for rising income and equality don't blame the government. blame jim cramer. i already get so much flack on everything else. that's the story on regular dividends. there are some stocks usually stocks with incredibly high and safe dividend yields where you have to treat dividend income like any other kind meaning the feds can take up to a 35% cut or more. what are these stocks? they're reits. they're real estate investment trusts. we use the acronym reit. they're royalty trusts. often known as energy trusts. these are companies that don't pay any corporate taxes so long as they give at least 90% of the

income back to you, the shareholder, usually in the form of big, fat dividends. the yields on these stocks can be enormous. for energy trusts which range from companies that own producing oil and gas fields, bp, prudeo bay, a couple examples, companies that operate oil pipelines, don't produce anything, just ship the stuff to you, that's morgan energy partners. sometimes these can yield 10% to 15%. giant yields aren't taxed as dividends. when it comes to the trust you should talk to a tax professional because paying taxes on dividends can get very complicated with a lot of paperwork. it's worth it to do the paperwork. some percentage won't be taxed because of depreciation, some could be tax deferred. could be treated as a return on an investment. the part you pay taxes on will be taxed as ordinary income. unless you're in the 15% or below tax bracket you'll benefit from putting these royalty trusts in an i.r.a. no canadian energy trusts. got to pay a special trust. right now we're not talking about -- we're talking about evading taxes, not evading taxes but avoiding taxes.

let's say reducing taxes? that sounds nice and legitimate. when it comes to real estate investment trust, you've got to be careful. make sure you're not buying one with too much debt. otherwise, you could be putting a ticking time bomb in your retirement portfolio. reits don't usually have such large yields, but terrific dividends. they're taxed as income rather than the 15% dividend tax rate. that's where your 401(k) and i.r.a. come in. if you buy these stocks for either kind of retirement account, you won't pay any kind of tax on these sweet, huge dividends, none. not the regular taxes you would pay if you bought them for a nonretirement account, not the 15% dividends, not taxes, period, not until you pull your money out after you retire. every year you'll take in these big yields and then you can reinvest the yields so they can compound and over time you're looking at huge, tax-free gains. a royalty trust that constantly yields 12% will probably outperform the s&p over a 10 or 20-year period. and we're not even considering

the possibility that the stock goes up too. one more thing about reits, the second part of your 401(k)/i.r.a. secret weapon, don't fall into the trap of thinking these are just real estate stocks, medical stocks, you've got timber reits, which own timberlands. and i'm not talking about the boots here. these are all kinds of companies, all with high yields, and not pure plays on real estate. the one constant is that their dividends are taxed as normal income, which is why the bottom line is that reits and royalty trusts with their high yields that are vulnerable to the tax man, they're the perfect secret weapon for your 401(k) or your i.r.a., as long as you know how to use them. kathy in florida, kathy? >> caller: hi, mr. cramer. boo-yah. >> boo-yah, kathy. thank you for calling. >> caller: i have a diversified, pretty diversified portfolio. and i wanted gold to be part of my retirement plan. but i keep hearing conflicting arguments. so for retirement plans, where should i invest?

i hear you saying gold stocks, but what about gold coins or mining companies? >> i actually like all these. now, gold coins, you've got to be careful. i wrote a piece for a site called mainstreet.com, which analyzed this heavily. i like gold bouillon, but gld tracks gold perfectly and that's perfect. the gld for your i.r.a. or your 401(k). remember your 401(k)/i.r.a. secret weapon, real estate investment trust and royalty trust. they can allow you to dodge taxes legally and rack up the dough. stay with cramer. >> investing's confusing. i've mapped out some road rules to help. hey, i'm cramer, remember, lots of people believe they should be fully invested, meaning they should have their entire portfolio in stocks at all times. that's nonsense. holding cash and sitting on the sidelines are perfectly acceptable alternatives to owning stock. you always want to have some

cash available, no matter how good or bad the market is. whether it's in a bank savings account, under the mattress, or in a piggy bank. you need to have cash on the side. sometimes the market is just awful. sometimes the market stinks to high heaven. bear markets happen, and when they happen, you want to have a lot of cash. honestly, i think cash is one of the most underrated investments, because nothing feels as good as being in cash when the market comes down. and then when the market bottoms, you can put your cash to work trying to find bargains. there's always a bull market somewhere and i promise to try to find it just for you on "mad money," weeknights, 6:00 and 11:00 eastern on cnbc.

i'm sorry. i can't hear you very well. announcer: does someone you know have trouble hearing on the phone? dad. dad, let me help you with that, okay? announcer: now, a free phone service shows captions of everything a caller says. i'd like to make an appointment to see the doctor. announcer: to learn more about captioned telephone, call 1-800-552-7724 or go to our website. i'll see you at 3:00!

announcer: captioned telephone - enjoy the phone again! [ quacks ] i like to say there's always a bull market somewhere and i promise to try to find it just for you right here on "mad money." i'm jim cramer. thanks for being on the special show. see you tomorrow. investing is confusing, i mapped out some road rules to help. i'm jim cramer. remember, stocks and high deaf dends can make for great investments in the market. safe dividends act as a defense mechanism to get you through good times. in a bad market, a good defense can be your best offense. all dividends were not created equal. you should always be suspicious of stocks with ultrahigh dividends, because they often don't get paid. an outside dividend can be a red flag, a reason to worry, not feel safe. the odds say an incredibly high

dividend isn't a sign of confidence or health, it's a sign of trouble. if you own a stock with a really gigantic dividend and it's possible the company might not be able to pay, you have to sell it. and if you don't own a stock like this, you definitely don't want to put it in your portfolio. there's always a bull market somewhere and i promise to try to find it for you here on "mad money." week nights at 6:00 and 11:00 eastern here on cnbc.