>> and what we were just talking about here, there are still some opportunities where options are high. meantime, "mad money" starts right now. \s . 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 help you find it. "mad money" starts now. hey, i'm cramer. welcome to "mad money." well come to cramerica. other people want to make friends. i'm trying to make you money, my job is to not only to entertain, but educate you. tonight i want to talk about the big picture, building wealth in general, not that i don't mind individual stocks, because stocks are one part, but still just one part of building real wealth.

not just living off your paycheck. there are some people, call them the 1%, if you want, who can make enough from their ordinary day-to-day income to become truly rich, but for the jas majorities of americans, the paycheck is 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, 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, but the truth is, before you even start investing, there are a lot things you want to do. 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 a foundation for long-term wealth. if you're hemorrhaging money anywhere else, at best it lets you stay afloat. if you plan things better, it might have let you become filthy

rich. there are three things you must take care of before you consider even owning stocks. normally -- sometimes i feel remiss that i'm not mentioning them more. we don't teach financial literacy in high school in this country, very few colleges will tell you a thing about how to manage your if positions, though you might learn a ton of stuff about english literature like dibbens or the theoretical foundations of marxism. you can have the personal financial found you need -- what are the three things you must do before you can even buy a stock. now you've got to do they things. first, i know this will sound boring, and it just sucks the life out of fun of everything, but i need you to say it and you need to hear it. you have to pay off all your credit card debt. i like to be as entertaining as possible, but i have to nag you on this. i'm not one of those people who believes all your credit cards

should be cut up into little pieces, or that credit card companies are evil. i do acknowledge the facts, and the facts are these, if you have credit card debt and paying an extraordinarily high interest rate to the credit card company, you've got to get rid of it. rates that tony soprano, the late tony soprano would give you better terms, though to be fair for the credit card industry, they're not going to break your knee caps, however, they will -- and they will suck you dry if you let them. it won't matter as long as you're burdened by credit card debt. it's simple math. you will not be able to generate returns that are consistently high enough to cancel out the damage that you do by keeping on that balance on your credit card. if you have good credit, you can still be paying around 15% annual interest. it's so big. you might be talking 20. i've seen it as 30.

your stock portfolio if it's 20%, it's a pretty good year, but all your gains would be sucked down by the usurious, this is simply a sin qua non of investments. stocks can't be generating -- they can't be the wealth generating machine they should be, because all the wealth they generate is canceled out by credit card debt. your parents are actually kind of like this time right. i want there are three things to do. the second is health insurance. you do not invest a penny in the market before you have health insurance. you may think that obama care will make this a nonissue, but in 2014, you have to have a choice, either buy health insurance or pay the penalty mandated by the affordable care act. the penalty starts out at $95 or 1% of your annual income, whichever is larger, in 2015,

the fee jumps to $325, 2% of your income otherwise, whichever is bigger and in 2016, $695, 2.5%. don't be a moran. even if you object to the affordable care act politically, it's idiotic to pay the penalty and get nothing. honestly, you shouldn't need legislation to -- medical emergencies are the single biggest cause of bankruptcy in this country. i know what it's like living without insurance, getting treatment from farm worker clinics before my parents finally bailed me out by taking care of my health care costs, and mere sister nan also thanks you. you don't want to be exposed to the huge downside risk of not owning health insurance. a couple hospital visits could wipe out of the cat that you spent years building in this market. i've seen it. sure you can get coverage even

with a preexisting condition, that's positive, but still a lot cheaper to buy insurance before you get sick. and you'll knee it at some point. last but nos least, i actually think you should have disability insurance. the rationale for -- without these two kinds of insurances you can get wiped out in a second. all the pressure gains that work here every night, they'll be for nothing. you'll ever either have to use that money to support yourself while being unemployed and injured, because you didn't have health or disability insurance. pay off your credit card debt, get health and disability insurance, and so you have no excuse for not getting them if you also can afford to own stocks. these are more than just items on a personal finance to do list. they're essential elements for capital preservation. remember, talk about capital precious, 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 we talk about moving into certain kinds of assets, like defensive stocks, stocking with big gifts or gold. here's the bottom line. more important than all that stuff is paying off your debt, get health and disability insurance. 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 uchblgts boo-yah, morgan. >> my question is about taxes. i have a regular brokerage account. as we will be approaching the enof the year, for someone who is just going to be starting think about -- where would be a good place to start?

>> as a matter of fact one of the worst decisions i have ever made was dictated by my broker who said it's time to switch out, ring the register, because they're going to raise taxes. it was a bad move that i made. please just think about investments from the point of view whether they're going to go up or not, and a lot of other things take care of themselves. the one time that i listened to my adviser said to do it, it was a huge mistake. i violated my own rules. todd in new york, todd? >> caller: hi, jim, i know you don't like writing covered calls, but i have a -- it recently came to my attention to writing covered calls is basically the same thing as shorting a put. could you please explain the difference? >> actually one has unlimited down side and one cuts off your up side. a lot of people -- what happens if the stock goes up big? you just lost the up side. what happens if you sell puts? you have unlimbed down side' never cut off the ability to limit your down side.

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. jerry in texas, please, jerry. >> caller: hi, jim you have a retirement 403-b, employer matched. i'm 69, and i've had this for 40 years. i have no plans on retiring within the next three to five years, but this plan only allows mutual funds, money funds, no stocks, but there are over 4,000 funds to choose from. i manage this 403-b. from all the funds available, i choose around ten and don't change them very often. right now the distribution is about one half money market and the rest is right across 500 index, technology, energy. >> i think that's too much money market. i think you have to switch to

make 40 and go up 60 on the rest because of that one key point that you mentioned, which you're not anywhere near retiring. you have years to make money. do not cut off your up side. we'll be talking about that later. markets up, market's down, but sometimes you need to step back and look at the big picture. preserve it. pay off the kred cards, please, get some health insurance, disability insurance, get some peace of mind, otherwise, it doesn't matter what stocks we buy. "mad money" will be right back. don't miss a second of "mad money." follow on twitter, have a question? tweet cramer #madtweets. send jim an e-mail, or give us a call.

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what's the next trade, not the church of what's happening now. if you're ser about getting rich and staying that way, i recommend you must do two things first, go to amazon and buy the entire jim cramer catalog -- i've gotten past that shameless piece of promotion away. the second is even prepare for retirement. notice, i didn't say save for retirement. crucial. i want prepare. different from. just putting your money in the basic or automatically saving it in a 401(k), though great, though these two tax-deferred -- they might not be enough. you should take an active hand is setting yourself up for retireme retirement. young people don't turn off the tv, you've got to do this, too. if anyone can make this process interesting, it's going to be me, c'mon, right? wouldn't you rather learn from a crazy lunatic -- that's

redundant, who throwing chairs around, uses sound effects? when you get these ceos, during the commercial, you know what they want to do? i'm not kidding. i want to make you a promise. i promise to give you useful advice. so many of these personal finance should you put money in an individual retirement account or i.r.a.? hmm, let me think about it. yes, you should. that's not bold insight or advice. it's just a fact. yet people say use your i.r.a., you know, cut up those credit cards, brilliant efif anies like pay your gills on time. don't spend more than you make. yet there are people who will tell you just that, and assume it's enough to help you get ahead. i say it's not basic financial responsibility, just a jumping-off point. i'm the guy who tell you where to go from there, because i

didn't make a career out giving people advice. i made a career to use money to make more money. how should you go about preparing for retirement? what useful advice should i give you beyond you should have 401(k) and i.r.a., you don't pay any taxes on the gains inside, allowing them for years after years of tax-free computing, compounding. all that stuff you know. almost every person on the street knows that. how about advice on what you should not do with your 401(k)? the conventional wisdom kiss put money in it, but then it leaves you on your own. so what should you not do with your 401(k) contributions? first and foremost, do use it to buy stock in the company you work for. i'm far from the first person to say this, yet company stock is still the most popular.

i cannot stress enough how misguided this is. why? every wednesday on this show, we play am i diversified? mean do you as a rule a eggs in a separate basket? when it comes to investing diversification. is diversification is the only free lunch. regular viewers know if you expos too much of your portfolio to the same sector, you run an enormous risk. say you had all your money in tech stocks. you could have been entirely worn out. they haven't come back. but for many of you, that was a long time ago. how about something more recent? in 2013, high yielding dividend stocks, this had been performing well for years. which meant that investors looking for income had no choice but to buy stocks with a notoriously big dividends, then interest rates began to rise.

epic, first time in ages, the return you could get from bonds increased dramatically. all these high-yielding stocks gall he got crushed, because they had final interest rate competition. so if all of your portfolio, our even one thing was made up of high yielders, lost money. that's the danger of not being diversifie diversified. many had them in bond funds, and that was even worse. now, by that logic, do you really want to invest your retirement money -- that would mean you're put what if you worked for enron or eastman kodak, or any other company that goes until, you lose your job and your retirement savings. that's a lose/lose. company why? you probably feel like you understand the company you work for. i'm telling you that excuse doesn't cut it. here is the bottom line. diversification comes before everything else, whether it's

your discretionary portfolio, or invest fog retirement. so never put -- is ittic with cramer if you want to know mower about how to actually manage your money, so you can build lasting wealth for you and your family, especially during retirement. stay with cramer.

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-- or doing something illegal, a la mr. walter white's operation. do it slowly and carefully. which is why tonight we're talking about long-term wealth building. i told you what you could do before going through stocks, and going through what not to do when investing for retirement. now i have some advise, real

advice. , which are the first places you want to investment for retirement because of the tax-deferred. 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 make it sounds like you have to sock something away, maybe a stable value fun, something i believe no one would invest in if they -- no, no, that's not how it works. that is unfortunate, because you have to do some real

un-brainwashing here. pull the wiring. most people when they're putting money away for retirement feel like they shouldn't take on too much risk. that's the music you hear in your ears. that they're too important to -- i understand why many of you feel this way. you know what, after inflation, that is irresponse. i call it recklessness mass dysprudence. it's far more likely to jeopardizes your savings in the long run than investing in anything else. 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 retirement. the truth is that if you are too risk-averse, meaning you load up on bonds in your 20s, 30s and 40s, avoiding stocks because of the risk, you will never generate enough money on your money to retirement comfortably.

the money you will have, it will be safe, but that's all it will be. it's not enough to get 2.8 or 2.9 return from u.s. treasurys. and that's the highest yielding long data u.s. bonds out there. with that low rate, you barely outpace inflation. capital preservation is not a suicide pact. 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 epit misof safety. there are moments when owning bonds can be extremely risky. in an environment are -- and the faster rates rise, the harder the bonds and those bond funds will fall. so give, it means that you likely won't generate enough return to retire when you want to. you've got your money back, they can certainly drop enough to

erase two or three years of -- in the second quarter, okay, what else the truth is this gives all slightly better return that is a money market and absolutely worst return than a high-quality bonds. if the return from nothing but bonds is too meager to build true wealth in your retirement accounts, the strong return from stable funds is even worse, people. the definition of trying to become so prudent that you become irresponse. my mission statement is to help you use your money to make more money. when you're either in your 401 cuss or just in your discretionary account, put money in things by treasury bonds, you effectually are taking that money off the table.

you're saying i'm not going to use it to generate more wealth, but you can't have it both ways, either you cling to safety and when it's time to retirement you don't have enough cash or tack some risks in stocks and go for the higher returns, because believe me while money can't necessarily buy happiness, being broke is a pretty sure ticket to being misrabbit. i'm not saying there's no place for bonds in a retirement portfolio. there absolutely is. there i said it, index funds, which is generally taking to be a good proxy you could do some schnitzeling. but orcht some moneys that my

ticket. my rule of them is 10% to 20% in bonds before you turn 30, then in the 40s, amp it up to 20, 50s, let's go 30 to 40%, and from age 60 on until you retire stick to 40 or 50%. that sounds aggressive, but that sounds like the best way to return what you need to and still have some safety. once you retire you should still own a stock, about a third of your portfolio at that point. this is counter to the conventional wisdom that says more bonds in your retirement, but the conventional wisdom was coined when people had shorter life does that spans. if you want to provide yourself, you need the extra up side from stocks, because eventually that safe monday will run out. do you really want to make that bet? stick with cramer, and i'll give you more specific tips to use

them to make even more money. may i go to bart in north carolina? bart? >> caller: i sold the income stocks in my retirement accounts, i want the income but not at the expense of losing principal. they stocks have all dropped after i sold them. when is it safe to buy them back in a rising interest rate environments? s back to levels where you think you can take a cushion, even if rates go to outside placements. i think that will be 5 to 5.5, and not before then, because you're going to be in a world where a lot of people will be selling those a lot of way until they get to 5.5, maybe even 6. let's go to wally in florida, please. >> caller: yes, professor cramer. >> hi. >> caller: i want to thank you for making my all this money so i can retire. >> you're very kind.

since you started your program, i've tripled my retirement money. >> wow. oh, thank you i hope people at heard that. a couple bad apples here. go ahead. i have new money to retired forever. whatti need to do now is what sector do i put my money in for the rest of my life? >> where you are, sir, is in that very, very admirable position where you only need to get rich ones, and you're rich. now you really are in municipal bondville. onyou to buy them until they yield 4%, 5%. i don't want bonds to go down, but you wait. you can be patient. you've earned it, don't give it back. don in california, don.

jim, thanks for taking my call. i obvious hear reference to monetary policy and fiscal policy, what is the difference between the two? and how do they affect the equities market? >> if you get congress to spent money. when you're in a klein, and the fed hats to print money. we only have the fed printing money right now, which is why we're not doing well. we need both to be loose in order to start hiring people, which i think is an admirable goal. 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. she keeps you on your toes.

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if you're looking to fill 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 why we're focusing on how to use 401(k) plans, individual retirement accounts. i'll tell you more about the latter after the break, but my favorite piece of advice about 401(k) investing. this is not an abstract idea. it's a tip based on how i personally -- is it you know what i'm going to tell but is worth hearing. most people who take advantage of their 401(k) plans contribute on a monthly basis. usually it's automatic, so every month you end up plowing in 1/12 of your total contribution. that's what everybody 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 a am not one of them. why not? there will be times that the market takes a big hit, you want to capitalize that, you want to be able to profit from it. why would you contribute to the same amount every single month. what you really want to invest the same amount of money when the money is nearing the top as the bottom? no, especially when you're investing for retirement when you have a long time horizon. pullbacks are a time to buy, not weep. whenever you get a 10% in the s&p 500, what some people in the profession would call a correction, double down. that's month you put in twice your normal contribution. 1/6 instead of 1/12. that may not sound like a lot of difference in the long run, but it does.

if you embrace the 1/12 solution, doubling down, as i have done twice in the last five years, you will make more money than if you just passively contributed the same amount month after month. just to make sure we are clear. i'm talking about investing this in a low-cost s&p 500 index fund, our if you're using an actively managed fund, one with a manager who has a long record of consistent outperformance. it's usually best just to stick with the index fund. i recommended one of these index funds, people, who keep p usualing that on me. anyway. will this make a huge difference over four or five years? probably now, but 40 or 50 years? it could be tens or maybe even hundreds of thousands, just by taking the time to observe what you have going on in the stock market. here's the bottom line -- pay attention to the market so when you get -- you can double down,

and invest twice your normal 401(k) contribution, take advantage of the chafe merchandise, when and you have 30 or 40-year time horizon, you can look at it as nothing more than a sale. no different from a sale at your local department store. that's the right way to manage crier retirement portfolio. stick with cramer. [ male announcer ] meet jill.

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while we're on the subject, i need to tell you about the limits of what people consider the holy grail, and i'm talking about the 401(k) plan. i've given you the dos and don't, and i'm the first to admit it can be a vital ostensibly wealthy one, but i'm not part of the crowd that you should max out. that would be 75,500 a years for 2013. it has a down side, plenty of them. the hear people say high management fees, and definitely eat away at your retirement capital no question, but for my money, the worst thing about most 401(k) plans is the lack of control. lack of control of your own money that you earned.

when it's time to sell everything. most 401(k) plans, more than a -- some for stocks, some for bonds, and most of what you have to choose from isn't all that good. and listen, that's for me too. i know it. it's driving me crazy, actually, but i guess it's okay. that's why we have the i.r.a., means individual retirement accounts, and and an i.r.a. doesn't have the high management fees. it lets you invest the way you want. most ways a superior vehicle for your retirement accounts. your i.r.a. has some great tax-deferred status, the one big picture difference is with many 401(k) plans your employer will match at least some percentage of the contributions up to a certain point. it's free money, and you would be a fool not to take it. but there's usually a cap on how much they will contribute. my rule of them for retirement

investing, contribute ago much money in you need to get the full company match and stop right there. don't put another one in until you've maxed out your i.r.a. contributions. then put the rest of the money you're saving into an individual retirement account. if you want to know whether to use a regular or roth or difference, i suggest picking up a copy of "stay mad for life" and it's the only book i've done for it. for now we're talking about a regular i.r.a. where the contributions are tax deductibles, and those -- until you start withdrawing the money in retirement at which point your withdrawals get taxes it's a pretty we'll deal. really, i mean, do it tomorrow. you can only four $5,000 a year into the ira until you're over 50 and then it's 65 his max this out if if you can afford to. if you do that you should be

able to fund a terrific retirement. however that is only only only if you please promise me you'll max out to your i.r.a. the bon like, 401(k) plans have a -- only contribute as much as it takes to get the full match from your employer. after that all the your savings should go into an individual retirement accounts with much lower fees and more flexibility. then just start by contributing to the ira, and keep going until you max it out or 6500 if you're over 50. let's talk to alison in ohio. alison? >> hi, jim. thank you for taking my call. first, it is my understanding that it's very rare for money managers to consistently outperform. market.

so my question is -- with the fact that money manager typically underperform in the market, expense ratios and index funds are low and you have the diversification, why invest in a mutual fund that is not an index fund? >> great question. some managers have historically beaten the market? 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. i notice money managers who can do it. choose them, i think that's the best. otherwise i like the ira when you can pick individual stocks, but i'm not against index funds if you don't have any time or inclinati inclination, they are the right way to go. dave? >> caller: how are you doing, jim? >> good. how are you? >> caller: you're awesome, your staff is awesome, and i can see

the hard work and dedication you put into your jobs to keep us intrigued on learning about investment, and i appreciate it. >> we are surrounded. this is the best staff of any show i have ever worked on, and i've worked on a lot of shows. go ahead. >> caller: yes, sir, i wanted to know about when you watch a stock market and they talk about, you know, the 10, the 30-years bond, how does that correlate with the stockses other than you hear that the money goes into the bonds and then it comes back -- >> what happens is people look at the tlt and they see that's going down, the bond price is going down, and they say, wait a second, i can get a better return in stocks, and it's all done by machine. if we think bonds are going down, interest rates going up, the machines just say sell stock, go bond. i'm working on exactly how close that correlation should be, but i have to tell you, it's point for point right now.

go 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, better and you're in control. stick with cramer. don't just visit san francisco. (water dripping and pipes clanging) visit tripadvisor san francisco. (soothing sound of a shower) with millions of reviews, tripadvisor makes any destination better.

we've got tots to some

tweets you've been sending me @jimcramer. the first is from john. is your opinion that i should eliminate penny stocks all together? the answer is, absolutely. there's no reason to ever own penny stocks. they're not down there because they're cheap. they're there, because they're worth about what a penny is worth. so let's cut it out. do high-quality stocks that we do homework on. our second one is this one is from ed cochran 18. should yearly versus quarterly dividend in compounding be a consideration. i like the monthly -- dave peltier does this stock advisory, but i have to tell you a quarterly is fine. so then we take -- this tweet is from -- i'm soish are soish i mispronounce these -- thank your parents who gave us you.

you won't get in business schools. >> i thank my dad all the time. i'm thrilled of the show. everybody here knows that. my parents inspired me. my mom always wanted me to be a writer. our next tweet says -- can you explain how etfs works on the show sometimes? are they sold to balance? they're supposed to in the last half hour, yes, supposed to balance, but in the end you don't have to wir about that. all you have to worry about is the etfs. remember, i don't like the double and triple. because they don't do what you think they do. here's one from -- another tweet comes from wayne marcus 67. he writing -- any chance you'll write about your real estate experiences? thanks. no, you wouldn't want to read them. they are so insane, so crazy that i have to tell you, there's so many people who would be

taken down in that book, that i would have to hire a private investigator, detectives and bodyguard. no, you will not hear about my real estate experiences. and, let's just say -- i wish a lot of them i hadn't done. how about that? a tweet from keith, and it says age 27, what is the best way to diversify a stock portfolio? this is really easy. you go into the riskiest stuff, because you have your whole life left, okay? you should be in the googles, in the celgenes, you should be in stocks that are just, you notice, hain celestial. here we have another tweet -- do you have any good suggestions on people who followsh go read confesses of a street addict, and then tell me if you ever want to trade currency. your answer is you won't. the next tweet qush how much do

you have so much energy? its i think some of it is genetics, and some is that i love what you do. another tweed which says -- jim, how does one find out the upgrade and downgrace before the opening bell. thanks. when i started the street, i made sure that all those were in, same game, still there. why not take another tweet. this one says -- what book would you suggest for newblies? one up on wall street by peter lynch, the great portfolio manager at magellan, who just made me a fortune in my i.r.a., that is still the best investment book ever written. stick with cramer.

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remember everything i've said about being a foundation. number one you can't start investing unless you already -- and you pay off any credit card debt you have. once there, you should think about retirement investing before you get to play with your discretionary "mad money" account. that means find funding your i.r.a. as well as 401(k). don't forget you should still own a lot of stocks in these retirement accounts, the biggest mistake to make is to be so afraid of risk that you end up dooming yourself to poverty, because you kept it all 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 health. i always like to say there's always a bull market somewhere. always a bull market somewhere. i promise to find it >> francis: what happens when a marriage worth millions falls apart? >> he told me either we fix this marriage today or i will divorce you tomorrow. >> francis: powerful people suddenly find themselves powerless. >> she met me when i was at the top of my game, and then, all of a sudden, she owns half of me. >> francis: they discover that marriage is not all about love and commitment... >> i wish i had understood that when you take away the romantic fantasy, marriage is a business contract. >> francis: ...and that even great wealth can be a liability. >> you need to look at why people are in the relationship with you. is it because they really love you or is it because they look at you as a free lunch? >> francis: these are sobering discoveries.