ouncer ] charmin ultra soft is made with extra cushions that are soft and more absorbent. plus you can use four times less. charmin ultra soft. my mission is simple, to make you money. i'm here to level the playing field for all investors. there's always a bull market somewhere. and i promise to try to help you find it. "mad money" starts now. hey, i'm cramer. welcome to "mad money." welcome to cramerica. other people want to make friends, i'm just trying to make you a little money. my job is not just to entertain but to educate and teach you so call me at 1-800-743-cnbc. today i want to talk to you about the big picture about building wealth in general. not just owning individual stocks, not that i mind that because stocks are just one part, absolutely the most

important one but one part of building real wealth. not just living off your paycheck. there's some people -- call them the 1% if you want -- who can make enough from their ordinary day-to-day income to become truly rich or for the vast majority of americans, the paycheck, it's simply not enough to get you there! you need to augment it. if you keep watching, i'm going to tell you how to do just that, not just for the next year or two years, but for the rest of your life. usually i come out here and tell you what i think of the market, what themes i think are doing best, the stocks that fit those themes. but before you start investing in stocks, there are a lot of other things you have to do if you want the payoff from those investments to mean something. tonight's the exception. you may not want to hear this but it's absolutely fruitless to think you can get rich in stocks if you haven't laid down a foundation for building long-term wealth beforehand. what do i mean by that? simple, you can make a fortune in the market, but if you're hemorrhaging money everywhere else, a portfolio won't do you any good. if you plan things better, it might have let you become filthy

rich! that's why i say there are three absolute necessities. three things you must take care of before you consider owning stocks. i don't usually address these subjects. normally i assume you have this stuff taken care of but sometimes i feel remiss i'm not mentioning them more. we don't teach financial literacy in high school in this country and very few colleges will teach you a thing about how to manage your finances, although you might learn a ton of stuff like english literature like dickens or marxism. you can have the personal finance foundation needed. what are the three things you must do before you can buy a stock? you might own the stock but now you've got to do these things. first, i know this is going to sound a little boring and you've heard it a million times and it sucks the life out of everything. i need you to say it and you need to hear it. if you have to, you've got to pay off all your credit card debt. i like to be as entertaining as possible, but i have to nag you on this subject because i still see people who have it. i'm no one of those that

believes you should cut them up in nice little pieces and turn it into a mosaic. or that they're evil. i like a lot of the credit card companies. if you have credit card debt and you're paying high interest rate on that to the credit card company, you've got to get rid of it. the late tony sparano would give you letter terms. they're not going to break your kneecap if you don't pay them back, but they will financially kneecap you with late fees and penalties and they will suck you dry if you let them. even if you're a one in a million trader, it won't matter if you're burdened by credit card debt. you're not going to be able to generate returns -- wall street speak for profits -- that are consistently high enough to cancel out the damage you do by keeping on that balance on your credit card. if you have good credit, you can be paying around 15% annual interest. and if your credit's not so hot, you might be talking 20%, i've seen it at 30%. if your portfolio racks up a 20%

annual return, that's a darn good year. if you've got a big balance for your credit cards, all of your gains will be sucked down the drain by those interest rates. so this is simply investing. you've got to invest, it doesn't matter what you do. if you go in with credit card debt, then stocks are just going to be a hobby for you and no more than that. stocks can't be generating -- they can't be the wealth generating machine they should be because all the wealth they generate will be canceled out by the amazing wealth destroying powers of credit card debt. i know i probably sound like your parents here, but your parents are kind of like, this time, actually right. what are the other two? the second is health insurance. you do not invest a penny in the market before you have health insurance. you might think that obama care will make this a nonissue. a lot of people think that. but in 2014, you've got to have a choice. either buy health insurance or pay the penalty mandated by the affordable care act or there'll be some fudging about when the penalty comes in. that's the gist of it. the penalty starts off at $95 or

1% of your annual income, whichever is larger in 2013, 2% of your income otherwise. again, which is even bigger -- whichever's bigger. and 2016, $695, 2.95% of your income. don't be a moron. even if you object to the affordable care act politically, it's idiotic to pay a fine and get nothing rather than pony up and get health insurance. plus, all kinds of subsidies to make the costs more bearable if you're on the lower end. you shouldn't need legislation to make you get insurance, it's the biggest cause of bankruptcy in this country. i know how bad it is to live without insurance because i've been there living in california getting treatment from clinics when i moved up north on interstate 5 before my parents bailed me out and my sister. i know especially the younger can feel vulnerable. you're not and you don't want to be exposed to the financial risk of not owning health insurance. a couple of hospital visits can wipe all the capital -- just wipe it out that you spent years building on this market and i've

seen it. sure, you can now get coverage if you have a preexisting condition, that's positive, but it's a whole heck of a lot cheaper to buy insurance before you get sick and you'll need health care at some point, everybody does. last but not least, before you start investing in stocks, i think you should have disability insurance. the rationale is pretty simple. without these two kinds of insurances, you can get wiped out in a second. that means all the precious gains in the stock market, they'll be for nothing. you'll either have to use that money to pay your hospital bills or support yourself while being unemployed and injured because you didn't have health or disability insurance. you have to pay off your credit card debt, get health and disability insurance, the last two are offered by many good employers in this country. you have no excuse for not getting them if you also can't afford to own stocks. these are more than just items on a personal finance to do list. they are essential elements in your strategy for capital preservation. we like capital appreciation, buying stocks that go up, capital preservation, preserving that wealth. again, all i'm saying there is i can help you buy the right

stocks. but we must always acknowledge that capital preservation comes first. because you need to protect your money in the present if you want to grow it in the future. normally talk about moving into certain kind of assets as part of a plan. that's like defensive stocks, consistent earnings, stocks with big dividends and low-interest environment. or gold for an inflationary environment. here's the bottom line. more important than all of that stuff is paying off your credit card debt, getting health and disability insurance, they are no different from that. they are the three most important elements of capital preservation i know. and without them, investing, all these great stocks we talk about, it just doesn't make any sense. how about we go to morgan in california. morgan? >> caller: boo-yah. >> boo-yah, morgan. >> caller: hello, cramer. my question is about taxes. i have a regular brokerage account, but as we will be approaching the end of the year, for someone who is just going to be starting to think about tax defer, where would be a good place to start? >> well, i've got to tell you, i

don't want you to think about taxes. one of the worst decisions i made was dictated by my broker who said it's time to ring the register because they're going to raise taxes big in this country. it was a really bad move i made. please, think about investments from the point of view of whether or not they're going to go up or not. we worry way too much about the tax man. and the one time i listened to my adviser to do it, it was a huge mistake. i violated my own rules. don't violate my rules. todd in new york. >> caller: hi, jim. i know you don't like writing covered calls. it recently came to my attention that writing covered calls is basically the same thing as shorting a put. could you please explain the difference? >> no, one has unlimited downside and one cuts off your upside. a lot of people say sell calls, what happens if the stock goes up big, you lost the upside. never cut off your upside. if you sell puts, unlimited downside in a crash. never cut off the ability to limit your downside. these are two of the dumbest strategies -- now, the whole

industry disagrees with me. but i have been there in market crashes and seen what being short puts will do. and i have tried to hold hands of people who wanted to commit suicide or at least financial suicide because they sold calls in situations where there were takeovers. let's go to jerry in texas. jerry? >> caller: hi, jim. i have a retirement 403b that's employer matched. >> right. >> caller: i'm 65 years old, i have no plans to retiring within the next three to five years, but this plan around mutual funds, money funds and bond funds, no stocks, but there are over 4,000 funds to choose from. i manage this 403b, and from all of the funds available, i choose around ten and don't change them very often. right now, the distribution is about 1/2 money market and the rest is spread across 500 index, technology, energy, chemical and bond funds. >> i think that's too much money market.

i think you've got to switch to maybe take it to 40% and go up 60% on the rest. because that one key point you mentioned which is that you're not anywhere near retiring. you've got a lot of years to make money. do not cut off your upside in that fund talking about that later in the show. market's up, market's down, but sometimes you need to take a step back, okay, and look at the big picture before making great wealth plays. preserve it, pay off the credit cards, please. get some health insurance, get some disability insurance, get some peace of mind. otherwise, doesn't matter what stocks we buy. other stuff's going to wipe you out. "mad money" will be right back. don't miss a second of "mad money." follow @jimcramer on twitter. have a question? tweet cramer #madtweets. send jim an e-mail to madmoney@cnbc.com. or give us a call at 1-800-743-cnbc. miss something? head to madmoney.cnbc.com.

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we're talking about a subject we don't spend enough time on in the business media or here, which is long-term wealth building. long-term not tomorrow, not the trade, the church of what's

happening now. if you're serious about getting rich and staying that way, then i recommend you absolutely must do two things. first, go to amazon, local bookstore and buy the entire jim cramer catalog right here. i've gotten that crass shameless piece of self-promotion out of the way. the second thing you should do is prepare for retirement even if you're in the early 20s and only just started working. notice i didn't say save for retirement. crucial. i said prepare. prepare for retirement because just stuffing your money in the first national bank or automatically saving it in an i.r.a. or 401(k) that we talked about are great though these two tax-deferred vehicles may be, they may not be enough to prepare you for retirement. you should take an active hand in setting yourself up for retirement and that's what i'm here to help you with. don't turn off the tv, you've got to do this too. and if there's anyone to make this prospect sound interesting, it's me. wouldn't you rather learn from a crazy lunatic -- that's redundant -- who throws chairs

around, uses sound effects. you get these ceos during the commercial, you know what they want to do? i'm not kidding! before i get going, i want to make you a promise. i promise to give you useful advice you can't find on the internet because so many of these personal finance bromides. should you put money in an individual retirement account, an i.r.a.? yes you should. that's not a bold insight, that's not advice, it's a fact. and yet people make careers out of saying, use your i.r.a., cut up those credit cards, spouting e epiphanies, like pay your bills on time. everybody in america knows, and yet there are people who will tell you just that and assume it's enough to help you get ahead. maybe they even charge for it. i say it's not basic financial responsibility, it is just a jumping off point. i'm the guy who tells you where to go from there because i didn't make a career out of giving people money advice.

i made a career out of using money to make even more money. so having the perspective of a money manage like me should you go about making money for retirement? you don't pay taxes on the money you contribute, and you don't pay any taxes on the gains inside allowing them for years after years of tax-free computing. -- compounding. in other words, all that stuff you know. i mean, everybody -- almost every person on the street knows that. how about advice on what you should not do with your 401(k)? anyone giving you that? the conventional wisdom says you should put money in it but then it leaves you on your own at the beginning of a complex if not nightmarish process. what should you not do? first and foremost, don't use money in your 401(k) to buy stock from the company you work for. the company's stock is the most popular 401(k) investment out there. more people put it into the stock of their employer than any other investment we hear it all the time in the "lightning

round." i cannot stress how misguided this is. why? let me put it in "mad money" terms. we play am i diversified, you tell me the top five holdings, i tell you if you're diversified with no companies part of the same sector. when it comes to diversification as i tell you in the first gospel according to cramer real money, is diversification is the only free lunch. regular viewers know that if you expose too much of your portfolio to the same sector, you run an enormous risk. suppose you had all of your money in tech stocks before the dot com collapsed, you would have been wiped out, something that soured an entire generation from investing -- they haven't come back. it's been more than a dozen -- they haven't come back. but for many of you, that was a long time ago. let's take the beginning of 2013, you were in high-yielding dividend stocks, it'd been performing well for years because buying yields were so low. which meant investors looking for income had no choice but to buy stocks with notoriously b.i.g. dividends. then interest rates began to

rise, epic first time in ages, the return you could get from bonds increased dramatically after the rise and all the high-yielding stocks traded and got crushed, they had interest rate competition from the bond market. so if all of your portfolio or even 1/3 was made up of high-yielders, you lost a lot of money even though the first half of 2013 was fabulous for the market as a whole. many of these people also had it in bond funds, the stuff not in stocks and that was even worse. apply that logic to your 401(k), do you want to invest in the same company that is paying your salary? that's putting your savings in the same basket as your paycheck. what if you worked for kodak or any other company that goes under, you lose your job, retirement savings. wow. that's really bad. it's a lose/lose. but people have made this argument before. why? you probably feel you understand the company you work for. the excuse is that you're investing in what you know. i'm telling you, that excuse doesn't cut it. here's the bottom line, diversification comes before everything when you're investing.

whether it be the discretionary portfolio if you're making mad money or investing for retirement. never put retirement money in the stock of the company you work for. stick with cramer if you want to learn more about how to manage your money so you can build lasting wealth for you and your family, especially during retirement. stay with cramer. i'd like to know, are you long america? >> we ford in the united states are competing with the best companies in the world. >> look at the global competitiveness of american companies by any measure. >> my life story can be your life story. you can start with nothing in america and create the american dream.

jim cramer, you're one of my heroes. >> i look forward to your show every weeknight. >> thank you so much for helping beginning investors like me. >> when you talk about the market, i just believe that you're spot on. >> oh, i love it. thank you so much. every night we watch you, i have learned and earned. everybody in this country wants to get rich quick, except for the hippie dippy types that don't believe in currency. but anyone who tells you he's got a way to make obscene amounts of money overnight is doing something illegal. the best most reliable way to get rich is to do it slowly and do it carefully. which is why tonight we're talking about long-term wealth

building. i've told you what you need to do before you can start owning stocks. we've gone through what not to do when we're investing for retirement. now i've got some advice, real advice, not just common sense, facts and bromides that should help you make more money with your 401(k) plan and your i.r.a. which are the first places you want to invest for retirement because of the tax deferred as i like to say tax-blessed status. and in case your 401(k), many employees will match a portion of your contributions, basically giving you free money. here's a basic rule, it's especially critical when you're investing for retirement. it is possible to be too cautious. it's possible to be too prudent, it's possible to be too risk averse. when you're managing your money, there's a point where all of your prudence becomes recklessness and this is something you particularly see with people who want to save for retirement because they're scared. i like to say you invest for retirement, don't save. you invest. because saving makes it sound like you have to sock some money away into something with low

return, make a money market, maybe a stable value fund, something i believe no one would invest in if they understood anything but the name or perhaps some bonds and you're good. no, no, that's not how it works. and that is unfortunate because you've got to do real unbrainwashing here, pull the wiring. there's unusually counterintuitive element. most people feel they shouldn't take on too much risk, right? that's the music you hear in your ears, right? that the retirement savings are too important to jeopardize by investing them in stocks. i understand why many of you feel this way, but if you shun from stocks including bonds because you believe there's less chance for downside, you know what, after inflation, that's simply irresponsible. i call it recklessness, investing in your 401(k) or i.r.a. money in stocks is far more likely to jeopardize your retirement savings in the long run than investing everything else any stocks would be. i'm not kidding. why? okay. when you're investing for retirement, you're in a race against time. you need to generate enough

money to support yourself for the rest of your life by the time you plan on retiring. and the truth is that you are too risk averse, meaning if you load up on bonds in your 20s, 30s and 40s avoiding stocks because of the risk because that's what you keep hearing about, you will never generate enough money on your money to retire comfortably. oh, the money you will have -- it'll be safe. but that's all it'll be. it's not enough to get a 3.8% or 3.9% return from treasury, maybe 30 years, maybe 4% may not be enough. and that's the highest yielding government bonds out there, with that rate, you can barely outpace inflation. please, you also have to factor in the need for capital appreciation, using your money to make more money, perhaps a lot more money. by the way, let's not forget the bonds aren't always the epitome of safety. there are moments when owning bonds, particularly bond funds can be risky. where interest rates are rising. the faster rates rise, the harder those bonds and bond funds will fall. so retirement money in bonds

means you won't generate enough return to retire when you want to and there are times when they have genuine downside risk. they won't go all the way to zero or even close. you get your money back, they can certainly drop enough, two or three years worth of coupon payments. we saw rates skyrocket in 2013 in the second quarter. what else falls under the category? how about the most popular investments out there, these are called stable value funds. i know that sounds reassuring, what's not to like? but the truth is, this is just a type of fund that gives you a slightly better return than a money market fund and a slightly worse return than a high-quality bond fund, although unlike bonds, they have insurance wrappers that protect you. but if the return from nothing of bonds is too small, then the small fund, it's even worse. the goal of the show, my mission statement is help you use your money to make more money. that's what "mad money," this show's about. when you either in your 401(k) or i.r.a. or your discretionary "mad money" investment account put things in stable value

funds, you're effectively taking that money off the table. you're saying this money, i'm not going to use it to generate more wealth, i want to keep it safe. but you can't have it both ways. either you cling to safety and when it's time to retire, you don't have enough cash, or you go for the higher returns that will enable you to retire healthier and happier in the long-term. while money can't buy happiness, being broke is a sure ticket to being miserable. i'm not saying there's no place for bonds in retirement portfolio. there absolutely is. you should have some of your cash cordoned off, something approximating a risk-free zone. but stocks come first. if you can't pick your own stocks, best way to invest in equities within a 401(k) is to find a cheap index fund. there i said it, that mimic the s&p 500 which is taken to be a good proxy to the market's high-quality stocks. stocks proven to be the best asset class to invest in over any 20-year period. as you get older, you can and should take some of that stock

money off the table, right. you should put it in high-quality bond funds for safety. but only some money, that's my ticket. my rule of thumb is you should keep 10% to 20% in bonds when you're in your 30s, then in your 40s, you can amp it up to 20%, 30% of your retirement portfolio, 50s, let's go 30% to 40%, and age 60 on, stick to 40%, 50%. that may sound extremely aggressive, but it's the best way to generate the return you need to retire the way you want to and when you want to and still have some safety. and once you retire, you should still own stocks. i think they should be about 1/3 of your portfolio at that point. this is very much counter to the wisdom that says you should have more bonds if your retirement savings. but it was when people had much shorter life spans. if you want to provide for yourself as you grow older, you need the extra upside from stocks when you retire. because eventually that safe

money in bonds will indeed run out. look at it this way, not owning stocks is a bet against your own longevity. do you want to make that bet? here's the bottom line, now you have your first principles. now go to bart in north carolina. bart? >> caller: jim, i sold the income stocks in my retirement account when interest rates started to rise. i want the income but not at the expense of losing principal and these stocks have all dropped after i sold them. when is it safe to buy them back in a rising interest rate environment? >> we've got to go back to levels where i think that you can get a cushion even if rates go to outsized places. and i think for little growth stocks, that's going to be 5 to 5 1/2 and not before then. because you're going to be in a world where there's a lot of people selling those all the way until they get to 5 1/2.

maybe even six for the lower quality ones. wally in florida, wally? >> caller: yes, professor cramer. >> hi. >> caller: hi, i want to thank you for making me all this money so i can retire. >> you're very kind. >> since i've been retired for 20 years and since you started your program, i've tripled my retirement money. >> wow. thank you. thank you. i hope the people @jimcramer on twitter heard that because, you know, you get a lot of positive but you get a couple of bad apples there too. go ahead. >> caller: and i -- i have enough money to retire forever. >> great. >> caller: so what i need to do now is where do i -- what sector do i put my money in for the rest of my life? >> okay. well, where you are, sir, is in that very admirable position where you only need to get rich once and you're rich. now you really are in municipal bondville.

i don't want you to buy them until they yield 4% or 5%. i don't want any bonds to go down. you can wait. you can be patient. you've earned it, don't give it back. don in california, don? >> caller: jim, thanks for taking my call. i often hear reference made to monetary policy and fiscal policy. what is the difference between the two? and how do they effect the equities market? >> well, i mean, look, if you get congress to spend money, you get inflation. i don't care which we have. when you're in a decline, you need congress to print money and when you're in the -- and the fed has to print money. and right now, we only have the fed printing money which is why we are not doing that well. we need monetary policy and fiscal policy to be loose in order to start hiring people, which i think is a very admirable goal. the best way to get rich quick, how about doing it slowly and carefully. when investing for your retirement, you're in a race

against time. now you have the rules. do it right. cramer, you are super, you are awesome. >> i'm a first-time investor. >> thank you for inspiring me to get in the game. >> your show is the best. i'm so glad you're on tv. >> i want you to know you have transformed me. thank you, cramer. every day we're working to be an even better company - and to keep our commitments. and we've made a big commitment to america. bp supports nearly 250,000 jobs here. through all of our energy operations, we invest more in the u.s. than any other place in the world. in fact, we've invested over $55 billion here

in the last five years - making bp america's largest energy investor. our commitment has never been stronger.  (announcer) scottrade knows our and invest their own way. with scottrade's smart text, i can quickly understand my charts, and spend more time trading. their quick trade bar lets my account follow me online so i can react in real-time. plus, my local scottrade office is there to help. because they know i don't trade like everybody. i trade like me. i'm with scottrade. (announcer) scottrade. voted "best investment services company."  every day we're working to and to keep our commitments. and we've made a big commitment to america. bp supports nearly 250,000 jobs here. through all of our energy operations, we invest more in the u.s. than any other place in the world. in fact, we've invested over $55 billion here

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keep up with cramer all day long. follow @jimcramer on twitter and tweet your questions #madtweets. if you're looking to build the foundations of long-term prosperity and if you're watching the show, i assume that's important to you unless you just like the sound effects, the first and most important step to set yourself up for retirement. that's what you've got to do first. that's why we've been focusing on tax favored investment vehicles. i'll tell you more about using the latter after the break. but right now i want to share with you my favorite piece of

advice. 401(k) investing, this is not some abstract idea. it's a tip based on how i personally manage my own 401(k). you know what i'm going to tell you about is worth hearing. most people who take advantage of the 401(k) plans contribute on a monthly basis and usually that contribution is automatic. every single month. so every month you end up plowing in 1/12 of your total annual contribution. that's what anybody ever does. they're on autopilot. there are people who will tell you to leave this alone, passively invest your money like that over time. i am not one of them. why not? because there will be times when the market does, indeed take a hit, maybe a big hit, and you want to be able to capitalize on that in your 401(k). you want to profit from it. why would you contribute the same amount every single month when stock prices can differ rally from one month to the next? would you want to invest the same amount of money when the market's nearing a top as you would when it's nearing a bottom? here's how to take advantage of a big decline, especially

investing for retirement, stock market pullbacks are opportunities to buy not reasons to weep and tear out your hair. it's really simple, when you get a 10% decline in the s&p 500 what some would call a correction, double down. that month you put in twice your normal 401(k) contribution, meaning 1/6 of what you plan to invest over the course of one year instead of 1/12 you usually invest. that may not sound like a big difference in the long run, but you know what, it does. if you embrace the 1/12 solution, doubling down when the market declines which i have done twice in the past five years, you would make more money than you would than if you contributed the same amount month after month after month in your 401(k). and make sure we're really clear, i'm talking about investing in a low cost s&p 500 index fund here. i'm not being fancy here. or if you're using an actively managed fund, or one that operates with a manager. you probably can't find a mutual fund like that so it's usually best to stick with the

investment fund. i recommended one of these index funds, people, who keep pushing that on me. anyway, that's what you're doubling down on when you make your contribution. will this make a huge difference? probably not, but over 40 or 50 years like me, it could mean tens of hundreds of thousands of extra dollars. just because you took the time to adjust your contributions accordingly rather than being on autopilot. pay attention to the market so when you get a 10% decline in the s&p 500, you can double down and invest twice your normal 401(k) contribution that month, taking advantage of the cheap merchandise, when you have a 30, to 40-year time horizon you can think of them as nothing more than a sale. no different from a sale in your local department store. that's the right way to manage your retirement portfolio. stick with cramer. taking control of your financial destiny is smart, but why would you go it alone? >> something that has a much larger bearing on you in the stock market as a whole. >> let cramer be your guide,

your sounding board. >> i'm having a hard time with my favorite stock. >> i know you can beat these professionals. >> and your coach on the road to financial independence. financial independence. "mad money," weeknights on cnbc. .

while we're on the subject of long-term wealth building, i need to tell you about the limits of what many people consider to be the holy grail of retirement saving. and i'm talking about your 401(k) plan. i've given you all the dos and don'ts tonight and i'm the first person to admit it can be a vital part of setting yourself up for a cozy retirement or grandiose wealthy one. but i'm not part of the crowd that says you should max out every year, that would mean putting $17,500 each year. no, your 401(k) is important but it has a downside. plenty of them. you hear people cite high management fees, i can't stand those, administrative costs as a problem, they are, and they eat at your retirement capital at a low rate and low return

environment, no question. but for my money, the worst thing about the most 401(k) plans is the lack of control. lack of control of your own money that you earn. and the lack of choice over what you can invest in them. i believe that the best way to invest as you know is buy individual stocks and do the homework in each one. try to spend as much time as you can each week so when you know it's time to buy more, time to sell something and when it's time to sell everything. most 401(k) plans don't give you that option, you usually get to choose between no more than couple different funds. and even though you can lobby the resource department to add better offerings, most of it isn't that good. and listen, for me too, i know it. it's driving me crazy, actually. but i guess it's okay. because it's why we have the i.r.a., meaning individual retirement accounts. i.r.a. doesn't have the high management fees and lets you invest the way you want, making it most ways a superior vehicle for your retirement accounts. i wish everything was like the i.r.a.

your i.r.a. has some great tax deferred status as 401(k). the one big difference is that with many 401(k) plans, your employer will match at least some percentage of the contributions up to a certain point and people love that. it's free money and you'd be a fool not to take it. but there's usually a cap on how much your company will contribute. my rule of thumb is for retirement investing is contribute as much money in your 401(k) as needed to get the full company match and stop there and at that point don't put another penny in there unless you've maxed out your i.r.a. accounts. you want to put it into an individual retirement account. if you want to know whether to use a regular i.r.a. or roth i.r.a., i suggest picking up a copy of "stay mad for life." i go into it in great detail. for now, though, we're talking about a regular i.r.a., where you pay no taxes on any gains inside the i.r.a. the profits are allowed to compound year after year until you start withdrawing the money at retirement. it's a pretty sweet deal, guys.

if you don't have it, really, i mean do it tomorrow. now you can only pour $5,000 a year as of 2013 unless you're over 50, then you can contribute $6,500. i say you max this out after you've milked your employer dry with your 401(k). if you do that, you should be able to fund a terrific retirement. you can go back and put it in the 401(k), however, that's only after you please promise me you'll max out on the i.r.a. the plans have a lot going for them but you should only contribute as much in your 401(k) as it takes to get the full match from your employer. and after that, all your retirement savings should go into an individual retirement account which has much less fees and much more flexibility. if your 401(k) has no employer match, just start by contributing to your i.r.a. and keep going until you max it out at $5,500 a year or $6,500 if you're over 50. allison? >> caller: hi, jim, thank you for taking my call. my question has to do with index funds. first, it is my understanding

that it is very rare for money managers to consistently outperform the market. they have a couple of years where they outperform, but this is not typical over time. and second, index fund expense ratios are typically very, very low if existent. and finally, depending upon the index, you get instant diversification. so my question is, money managers typically underperform the market, expense ratios and index funds are low and you get the diversification. why should i invest in the mutual fund that is not an index fund? >> well, some managers devote -- some managers have historically beaten the market. i -- after all my fees, i compounded at 24%. that was three times better than the s&p. so i don't agree with the characterization. i was in the business for a long time. there are money managers who can do it and that was after all the fees. look for the managers who do and choose them. i think that's the best. otherwise, i like the i.r.a. but i'm not against index funds per se if you don't have any

time or inclination, there are the right way to go. dave in north carolina, dave, please, dave? >> caller: boo-yah, jim. how are you doing? >> how are you, dave? >> caller: i just want to say -- you're awesome, man, your staff's awesome. and i can see all the hard work and dedication you put into your job to keep us intrigued on learning about investment. and i want to say i appreciate it. >> thank you, we are surrounded on this staff. this is the best staff of any show i've ever worked on and i've worked on a lot of shows. go ahead. >> caller: yes, sir. i wanted to know about, you know, when you -- when you watch the stock market and they talk about, you know, the 10, the 30-year bond. how does that correlate with the stocks other than you hear that the money goes into the bonds and then, you know, it comes -- >> well, i mean, what happens is people look at the tlt and see that's going down. the bond price is going down and they say, well, wait a second, i can get a better return in bonds so i sell my stocks and it's

done by machine now. if we think that bonds are going down, interest rates going up, then the machines algorithm it's one for one right now. all right go to the limit. contribute to your 401(k) up until the amount that the company will match. that's it. then it's all i.r.a. because it's a much better system. it's cheaper, it's better, and you're in control. stick with cramer. boo-yah, ske-daddy. >> let me tell you how i see it. >> hey, cramer. >> how's the bull market today? >> hey, cramer. >> hey, cramer, boo-yah. >> see the world through the eyes of jim cramer. "mad money," weeknights only on cnbc. uh-oh! guess what day it is??

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we've got to get to some tweets you've been sending me @jimcramer #madtweets. here we go, our first tweet comes from johnqocoach. is your opinion that i should eliminate penny stocks altogether, and the answer is absolutely, there's no reason to own penny stock. they're not down there at a penny because they're cheap. they're there because they're worth about what a penny's worth. let's get out of that game. let's do high-quality stocks that we do homework on. that's how we'll make our money. our second one, this one is from ed cochran 18. should dividends and compounding be a consideration? look, i like the monthly dividend stocks, dividend stock advisories, got a bunch of those. but quarterly's fine. keep investing, that's the crucial thing. then this tweet is thank your parents who gave you a great person giving free financial markets advice. you won't get in business

schools @madmoneyoncnbc. i'm thrilled i have this show, and everybody here knows that and my parents were terrific to me and my mom always wanted me to be a writer and that's what we do every day here. our next tweet says can you explain how etfs work on the show sometimes. are shares bought and sold to balance? they're supposed to, in the last half hour they're supposed to balance, but in the end, you don't have to worry about that. that's the thing that's so mysterious, just worry about the etfs, don't worry about the settlement. but i don't like to double and triple. they don't do what you think they do. here's one from -- another tweet, this one comes from wayne marcus 67. he writes, any chance you write a book about your real estate experiences, i would love to read and learn. thanks. no, you wouldn't. no, you wouldn't, because they're so insane, so crazy, i have to tell you -- there are so many people who will be taken down in that book that i would

have to hire a private investigator, detectives, and a body guard. so, no, you're not going to hear about my real estate experiences because a lot of them are in strange places and i backed into some of them. and let's just say, i wish a lot of them i hadn't done. now let's go to another tweet. what's the best way to diversify a stock portfolio? what percentage? this is easy. you go into the riskiest stuff. you should be in the googles, in the celgenes, stocks that are just, you know, hain celestial, the real aggressive stuff. here we have another tweet from @50gamer. go read confessions of a street addict, okay? go read that and tell me if you want to trade a currency again and the answer is, you won't. our next tweet from @streethrusavsky. how do you have your energy?

some of it is genetics and some of it is because i love what i do. now a tweet that says, jim, how does one find the upgrades and downgrades from analysts that have announced before the opening. you can find on yahoo finance, the street.com, same game, still there. why don't i take another tweet from crystal g world who says what book would you recommend for understanding the right choices in investments. "one up on wall street" by peter lynch. he's retired, who just made me a fortune in my i.r.a. and that is still the best investing book ever written. stick with cramer. they say money never sleeps. neither does jim cramer. follow @jimcramer on twitter. every day we're working to be an even better company -

and to keep our commitments. and we've made a big commitment to america. bp supports nearly 250,000 jobs here. through all of our energy operations, we invest more in the u.s. than any other place in the world. in fact, we've invested over $55 billion here in the last five years - making bp america's largest energy investor. our commitment has never been stronger.

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remember everything i've said about building a foundation for long-term riches. number one, you can't start investing unless you already have health and disability insurance and you've paid off any and all credit card debt you might have. once you're there, you want to think about retirement investing before you get to play with your fun discretionary "mad money" county. that means finding your i.r.a. or 401(k) to get the full employer match. you should still own a lot of stocks in these retirement accounts. the biggest mistake you can make is to be so afraid of risk that you end up dooming yourself to poverty because you kept all your retirement savings in low-yielding bond funds that barely beat inflation. get all of that down and you'll be well on your way down the path to prosperity.

never forget, health and disability insurance, 50% of the bankruptcies are caused by that. i'd like to say there's always a bull market somewhere, i promise to try to find it for you here on "mad money." i'm jim cramer and i'll see you i'm jim cramer and i'll see you next time. $10 million company, and in that process, i have to teach these two that business isn't personal. >> you can't fire any of my employees. >> it's a business, robin. if they don't listen... i'm saying "no." this company will close its doors. my name is marcus lemonis, and i fix failing businesses. i'm willing to write a "half a million dollar" check. i make tough decisions. i'm not willing to do the deal if you're in charge of sales. back them up with my own cash.