>> i'm going to sandwich tim. >> easy, easy. >> whoa, whoa. >> coca-cola. >> easy. >> sandwiching tim is aggressive. >> i'm melissa lee. seem you back here tomorrow at 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," welcome to cramerica. other people want to make friends, i'm just trying to make you money. my job is not just to entertain but to educate and teach. call me at 1-800-747-cnbc or tweet me @jimcramer. tonight i want to talk to you about the big picture, building wealth in general and not just ownings stocks in particular. stocks are one part the most

important one. there are some people, call them 1% if you will, who can make enough money from their ordinary day-to-day income to become truly rich. what a great thing. but for the vast majority of americans, that paycheck is not enough. you need to augment it, work with it. and if you keep watching, i'm going to tell you how to do that, not just for the next year or two years but the rest of your life. usually i come in here and tell you what i think of the markets, what themes are the best, stocks that fit those themes. but the truth is 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 later in life. when you most need the money. you may not want to hear this, but it's 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? simple. you can make a fortune in the market but if you're hem regging money anywhere else, the healthy portfolio won't do much for you.

at best it will keep you afloat when, if you planned things better it might have let you become wealthy. there are three absolute necessities. three things that you must take care of before you consider owning stock. i don't address these subjects normally. i assume you have this stuff taking care of but sometime us feel like i'm being remiss in not mentioning them more often. we don't teach financial literacy in high school, very few colleges will teach you a thing about how to manage your finances. you might learn about english literature or the theoretical foundations of marxism, that doesn't mean i can't offer a finance primer "mad money" style. especially since i know from your phone calls and e-mails and twitter that you crave this education. you just ask for it every day. so i'm done ignoring it, ends tonight. what are the three things you must do before you can own stocks? i know this will sound boring and you've heard it a million times, sucks the life out of the fun of everything but i need to say it and you need to hear it.

you have to, have to, have to pay off that credit card debt. i like to be as entertaining as possible but i have to nag you on the subject. i'm not one of those zealots that believes your credit cards should be cut into pieces and turned into a mosaic. or that credit cards are evil and should be burned in effigy. but i acknowledge the facts and the facts are these. if you have credit card debt you are paying an extraordinarily high interest rate on that debt to the credit card company. we're taking rates that may make a loan shark -- that's right, you're paying a loan shark. now, it would make a loan shark blanch. the late great tony soprano would give you better terms. but the credit card industry won't break your kneecaps if you don't pay them back. [ rim shot ] but they will financially kneecap you with late fees that can destroy whatever you build up from your paycheck or other investments. like many aspects of personal finance, i have a one time or another unfortunately brushed up against the down side of credit cards. in between college and law school i owed a huge amount of money to various creditors, just

enough to make it so i had very little money left to live on. initially because of some rotten luck and a bad break i ended up living in my car. i am inveterate saver, i managed to put a few bucks away into a retirement account i created investing with fidelity magellan fund. what books are good? "one up on wall street" remains the seminal text for understanding the market that's ever been penned. it's in amazon. but once i get a permanent address and knew where i was going to live, even though i was in hoc to a bunch of companies i owed money to before i started living in my 1978 ford fairmont, the credit card issuing companies found me and i took a bunch of them down. i pretty much everyone who offer med plastic. i always figured you can pay the minimum on each one and string everybody out. the credit issuers never seemed to mind. i remember i had four of them going each month, paying the minimum and i gotten a offer from a place in pr for for one more and i said what the heck, why not? but when i added up the minimum payments and charges once i took a that last card down i realized

they amounted to my biggest expense after my rent. i wanted to default but feared the consequences. i restruck which ared my non-credit card dealt with a collection agency. these guys are like a posse. they found me soon after i skipped on them and their easier payment plan gave me just enough breathing room to get buy until i went back to law school where i got a scholarship with room and board. there i was able to get nice legal work from the great alan dershowitz, worked on the fabled claus von bulow trial and even though the hourly rate seemed huge to me, every penny went to those darn credit card companies. there was nothing left for me. in the end after school i got lucky, i landed a job in sales and trading at goldman sachs and paid off the bills rather quickly. what a relief. because in the end i couldn't stomach opening the mail. not everyone will be as fortunate as i was snagging a job that took me out of the credit card wilderness within several months ever work but i am realistic and know where of i speak when i say there's no way you can make enough money away from these card issuers to save

in any meaningful way. let me put it to you think way -- even if you're a credit investor, a one hundred million trader, it won't matter if you'red with credit card debt. even if w good credit, you'll be paying 15% and 23 your credit isn't so hot, 20%, 30%. if your stock portfolio racks up 20%, that's a darn good year. but if you have a big balance on your credit cards, pretty much all of your gains will be sucked down the drain by those surs you interest rates. this is a sine qua non of without not of investing. if you go into credit card debt stocks will be a hoppy for you. stocks can't be the wealth generate magazine they should be because the wealth they generate will be canceled out by the wealth-destroying powers of credit card debt. [ buzzer sounding ] i know i sound like your parents but your parents are right. i said there are three things you need. the second is health insurance. you should not invest a penny in

the market before you have health insurance. you might think the affordable care act makes this a non-issue but you have to buy health care insurance or you pay a fine and industrial no health care insurance. the penalties get bigger over time so there isn't any choice. even if you object to obamacare politically, it's idiotic to pay a fine and get nothing rather than pony up and at least get health insurance plus there are subsidies to make the cost more bearable if you're on the lower end of the income spectrum. honestly, you shouldn't need legislation to make you get insurance. medical emergencies are the single biggest cause of bankruptcy in this country. i know how people live without insurance because i've been there too when i was homeless. i had no health care plan and had to drive hours to get to a farm workers clinic to see a doctor and i couldn't get the care i needed. i know you don't think it can happen to you and the younger demo in the audience can feel invulnerable but you're not and you don't want to be exposed to the down side financial risk of not owning health insurance. one illness, a couple hospital

visit cans crush the capital you spent building for years. sure you can get coverage if you have a pre-existing condition but it's a heck of a lot cheaper before you get sick. and you'll need health care eventually at some point. everybody does. last but not least, you need disability insurance. the rationale for both health insurance and disability insurance is simple. without these two kinds of insurances you can can wiped out in a second. all the precious gains you've wracked up will be for nothing because you'll have-to--to-use the money to pay your hospital bills or support yourself while unemployed or injured because you didn't have health or disability insurance. in short, you have to pay off your credit card debt and get health and disability insurance, the last two are offered with good prices by many employers so you have no excuse for not getting them if you also think you can 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.

remember, we talk about capital appreciation when you grow your investments using money to make more money but we always acknowledge capital preservation comes first because you need that to protect your money in the present if you want to grow in the the future. here's the bottom line -- paying off your credit card debt and getting health and disability insurance are the three most important elements of capital preservation, without them, investing doesn't make sense. why bother? with heavy credit card debt and without health care and disability building wealth can be futile, even if you're one of the best investors in the world. so take care of these issues starting tomorrow then we can create the portfolio that makes the most sense for you. zaidy in connecticut. >>. >> caller: hey, jim. >> how are you? earl a car >> caller: i love your show. i quit my job two years ago, 57 years old and i have $400,000 in a 401(k) that i've been trading myself in a small cap which i haven't done recently.

i had good returns now i don't know if i should roll it into an ira or -- >> do you like what enough your 401(k)? >> we have a self-direct brokerage, i was in fidelities fdi, i did well with that for a while. >> you should stick with it, you're in good shape. just stick with it. i like what you've got. i think that's a good opportunity. some people are really locked in. mike in new york. mike? >> caller: hey, mr. cramer, how are you doing? >> all right, how are you? >> caller: i'm doing fine. i just have a question concern the city pensions. i've been a retired police officer now for two years, i've been in the city pension system for over 20. what is the difference between the 457 plan and a roth i.r.a. and what are the benefits or the pros and cons between the two plans? >> i'm going to have to ask you to check with your people at your pension plan because the 457 deferred plan i am not quite sure how that works and i'm not going to be able to cuff something hereme.

it's too important. i'm very sorry but that's a personal decision to you and i don't feel comfortable offering advice on that particular situation. before you can think about investing in stocks, make sure you're building a foundation for long-term wealth. pay off your credit card debt, get health and disability insurance then create a portfolio together. on "mad money," you know i want you to be diversified and the same applies for your 401(k). i'll show you how to balance your retirement plan. then, should you ever tinker with your contribution level? don't miss my take. the 401(k) isn't the only game in town. when it makes sense to add an ira to the mix. "mad money" will be right back.

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tonight we're talking about a subject we don't spend enough time on in the business media, long-term wealth. if you're serious about getting rich and, more important, staying that way. i recommend you absolutely do a few things, go to amazon and buy the entire jim cramer catalog. and now that i've got that piece of self-promotion out of the way, the second thing you should do to prepare for retirement, even if you're in your early 20s is you've got to start saving now. notice i didn't say save for retirement, i said prepare. because you're just stuffing your money in the first national bank of sealy, a.k.a. stuffing into it your mattress, saving in the an i.r.a. or 401(k), great though those two tax-deferr

vehicles may be, they may not be enough to prepare for retirement. really getting involved with your money, getting your hands dirty with the traditional vehicle, you'll get next to nothing. and with that minimum reward, not worth the risk. and that's what i'm here to help you do. young people, don't turn off the tv, you have to do this, too. believe me, if there's anyone who can make the process sound interesting it's me. you need to learn how the do this some time. wouldn't you rather learn from a guy around for ages even though he's been moving around, highlights waste management, not to imagine the sound effects. i promise to give the you some useful advice that you can't find on the internet because so many of these pro mieds have been reneedmeepeated ad nauseam. you should save. yes. but should you do an individual

account i.r.a.? yes, but that's not a bold insight, that's a fact. yet people make careers out of saying use your array, use your 401(k), cut up your credit cards, spouting brilliant epiphanies like pay your bills on time. great pieces of advice that everybody in america already knows and yet there are people who will still condescendingly tell you just those points and assume it's enough to help you get ahead. i say it's not. basic financial responsibility is just a jumping off point like, hey, diet and exercise, please. 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 and i came to this gig later in life. so how from the perspective of a money manager like me should you go about preparing for retirement? what useful advice can i give you beyond just that you should use your 401(k) plan if you have one and your i.r.a. which men

can have because you don't pay taxes on the money you contribute and you don't pay taxes on the gains inside them, allowing for years after years of tax-free compounding. how about advice on what you should not do with your 401(k)? the conventional wisdom says you should put money in but it leaves you on your own at the beginning of a complex and highly confusing process. what should you not do with your 401(k) contributions? first and foremost, don't use much of your 401(k) money to buy stock in the company you work for. i'm far from the first person to say this, yes company stock is still the most popular 401(k) investment out there. more people put the retirement dough into the stocks of their employer than any other investment. i cannot stress enough how misguided putting too much money in the stock of your company. is it must be only one part of a much larger pie. why? let me put it in "mad money" terms. every wednesday on this show we play "am i diversified?" you tell me your top five holdings and i tell you if your

portfolio is diversified meaning you have all five eggs in separate baskets with no companies part of the same sector. when it comes to investing, diversification, as i tell you in the first gospel according to cramer, jim cramer's real money sane investing in an insane world, it's the only free lunch out there. if you expose too much of your portfolio to the same sector you are running an enormous risk. suppose you had all of your money in tech stocks before the dotcom collapse. many people did. you would have been virtually wiped out. something that soured an entire generation on investing for years. or let's say the beginning of 2013, a little more current, your entire portfolio was in higher yielding dividend stocks. this is a cohort that had been performing well for years because bond yields were so low and yields kept going lower, bond prices kept going up which meant investors looking for income had no choice but to buy stocks with notoriously big dividends. in the spring of 2013 we had an interest rate scare. interest rates rose violently. the return you can get from bonds increased dramatically and

these high-yelding stocks which is basically trading as bond alternatives got crushed because they had some real interest rate competition from the bond market. so if all of your portfolio or even one-third of it was made up of these high yielders, you lost a lot of money even though the first half of 2013 was fabulous as a whole. that's the danger of not being diversified. we'll get more interest rate you can see thes. those of you in those stocks will get hurt again. apply that logic to your 401(k). do you want to invest your retime money in the same company paying your salary? that would mean you're putting your savings in the same basket as your paycheck. what if you worked for enron? how about the earlier iteration of eastman kodak for more recent less unsavory example. or any other company that goes under. you lose your job, you lose your retirement savings. it's lose-lose. you think it's conjecture, you know, i used to have a radio show called "real money" and i got a giant number of calls telling me to stop bashing enron.

why? because the callers had a ton of stock in the company. i then came back and explained that perhaps they needed to diversify away from enron. each time i did it, i heard about how they got discounts or how such a great company was too terrific to sell or the fact is that it was down so much. they couldn't sell. then one day it was gone. many people made this argument before and the company stock is still the number one investment. why? you feel like you understand the company you work for and the excuse is that you're investing in what you know. that doesn't cut it. you have to cut back. cut it back tomorrow. here's the bottom line. diversification comes before everything else when you're investing, whether it be your discretionary portfolio to make mad money or especially if you're investing for retirement in your 401(k) so never put more than one-fifth of your retirement money in the stock of the company you work for. just like i advise not putting more than one-fifth of your capital in any one sector. doubling down is okay for no

more than that and remember that's what you're doing. you're doubling down. it always carries risk beyond being undiversified. stick with cramer if you want to know more about how to manage your retirement money so you can build lasting wealth for you and your family. there's much more mad "mad money" ahead. americans are living longer these days. that should change the way you prepare for retirement. i'll help you fill those golden years with green. sometimes your 401(k) doesn't cut it. don't miss my take on when it makes sense to go above and beyond your normal contribution. plus i.r.a., 401(k), i'm weighing in. stick with cramer.

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came courtesy of james and patricia thompson. this tv? margaret and tom lee. the championship game ball? that was sebastian diaz. good guy. and all i had to do was ask for their money and pretend i was investing it. their life savings is now my lifestyle. female announcer: don't let someone else live the life you're saving for.

find out if you're dealing with a registered investment professional at investor.gov. it's a great first step toward protecting your money. before you invest, investor.gov. everybody in this country wants to get rich quick -- except perhaps for hippy types who don't believe in currency and want to live off the grid. anyone who tells you he has a way to make obscene amounts of money overnight is peddling some scam or doing illegal. how about walter white's late lamented meth operation in "breaking bad." i love when brie -- bryan cranston came on "mad money" and said you didn't need selling, the blue meth sold itself. but that get rich quick scheme ended real bad.

the most reliable way to make your money go as i explain in "get rich carefully" is to do it slowly and prudently which is why we're talking about long-term wealth building. here's a rule that applies to all forms of investing but is critical when investing for your retirement. i know retirement money is meant to be sacrosanct with little risk taken but it's possible in this era of very low interest rates which seems like it can go on for a long time that you can be too cautious. too prudent and too risk adverse. when you're managing your money there's a point where your prudence can become like recklessness and this is something you particularly see with people who want to save for retirement. i like to say you invest for retirement, don't save, savings makes it sounds like you have to sock money away into something with low return, maybe a money market fund, a long-term bond fund, something i believe no one would invest in if they fund ri -- understood the risks of either. not these days, not this age.

these there's a counterintuitive element going on here. most people feel like they shouldn't take on too much risk, that retirement savings are too important to jeopardize by investing them in stocks. i understand why you feel this way. stocks can go down, they're not like returning vacuum cleaners unlike bonds but if you shun stocks and cling to bonds because you believe there's less chance for down side, that's not being all that intelligent right now. i call it recklessness masked as prudence. investing none of your 401(k) or r i.r.a. is more likely to jeopardize your retirement savings in the long run than investing everything in stocks would be. why? 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 if you are too risk averse, meaning if you load up on bonds in your 20s, 30s and 40s, avoiding stocks because of the risk -- and i see plenty of i.r.a.

401(k)s like this, you'll never generate enough money to retire comfortably. the money you have will be safe but that's all it will be. it's not enough to get a low single digit return, something below 4% because with that low rate you're barely going to outpace inflation. capital preservation should not and is not a financial suicide pact. 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 bonds aren't always the epitome of safety, either. there are moments when owning bonds can be risky. in an environment where interest rates are rising by definition, bond prices are going to fall and the faster rates rise, the harder those bonds will fall, something that will truly be felt by anyone who puts money in a long-term bond fund which can lose money if rates shoot up as so many feel will happen if the federal reserve isn't careful and doesn't raise rates with alacrity. i'm not one of them, but many say that. so keeping all of your

retirement money in bonds means you won't generate enough return to retire when you want to and beyond that there are times when bond prices have genuine down side risk. they can drop enough to risk two or three year's worth of coupon payments as they did in the second quarter of 2013 if you timed it wrong. what else falls under the category of recklessness masked as prudence? stable value funds. i know that name sounds reassuring, doesn't it? stable value. the truth is this is a type of fund that gives you a slightly better return than a money market fund and is slightly worse return than a high quality bond fund. but they have insurance wrappers that protect you from fluctuations in value but if the return for nothing but bonds is too major leaguer to build true wealth in your retirement accounts then the small return for stable value funds is worse. the definition of trying to be so prudent you become actually irresponsible. the goal of the show, my mission statement is to help you use your money to make more money.

even as i know that requires work and you can't be on autopilot as so many of you are. when you either in your 401(k) or i.r.a. or in your discretionary investing account put money into things like treasury accounts, you're taking the money off the table. you're saying i won't use this money to generate more wealth. i want to keep it safe. but you can't have it both ways. either cling to safety and when it's time to retire you don't have enough cash or you take risks in stocks when you're younger and go for the higher returns that will enable you to retire healthier and happier. believe me, while money can't buy happiness, being broke is a sure way to be miserable. i'm not saying there's no place for bonds in a retirement portfolio, there is. as you get closer to retirement you should have your cash cordoned off into something approximating a risk-free zone because you'll use the money shortly but stocks come first as an option to much later in life which is so different from the old days when pensions were bigger, life peck sanity was shorter and interest rates

weren't being slugged down and the european economy always bordering on recession makes their bonds unworthy sending more money here, creating absurd demand for bonds with low yields. even corporate bonds have become difficult to invest in as they offer yields that used to be chintzy for government bonds. those who bought the big corporate offerings ever, those long-term bond offerings from apple and verizon might do better owning the common stocks and reinveinthe dividends. 401(k) plans havretty limited options. it bothers me but it's true. if you can't pick your own stocks, the best way is to find a cheap index fund that mimics the s&p 500 which is taken to be a good proxy for the market's high quality stocks the kind of stocks that have been proven to be the best asset class to invest in in over any 20-year period. as you get 0e8der you can and take take that money off the table and put in the high quality bonds for safety but only some keep 10% to 20% of your time and portfolio in bonds when you're in your 30s, no

reason to own bonds before you turn 30 at all then in your 40s up to 20% to 30% in bonds. in your 50s 30% to 40% and until you retire 40% to 50% bonds. this may sound aggressive but it's the best way to generate the return you need to retire the way you want you want to and when you want to. once you retire you should still own stocks. especially higher yielding stocks that can generate more income with that that much risk. i think they should about a thursday of your portfolio at that point. i know that's aggressive but i have to give you what i think is right. this is very much counter to the conventional wisdom that says you should have more bonds in your retirement savings but the conventional wisdom was coined when people had shorter life spans. if you want to provide for yourself as you grow older you need the extra up side from stocks when you retire because that safe money in bonds will run out. look at it this way, not owning stocks once you're retired is a bet against your longevity. you want to make that bet? now you have your first

principles of retirement investing. stick with cramer and i'll give you more specific tips for using your i.r.a. and 401(k) to make even more money. sean in new york. sean? >> caller: thanks for taking my call. my uncle franky got me hooked on your show and i'm a big fan. >> that's terrific. >> caller: my question is about investing a roth i.r.a. i'm 25 and recently graduated from law school and over the past three years i've taken advantage of my pretty much non-existent tax rate and maxed out my roth i.r.a. from a summer job. so my question is i have the money invested in broad stock index funds but i want to know how i can invest more aggressively. >> you know what, sean? you've got to get into an aggressive mutual fund for a half of that money. someone is looking at aggressive growth. in the next ten years, off shot to make a lot of money from that fund. 10 years from now if we're having the same conversation -- which i hope we do -- you can pull back but this is your chance to risk that money because you have to rest of your life to make it back. dan in florida, please, dan.

>> caller: jim, long time first time. >> yes. >> caller: jim, i would like to hear your thoughts on a buy and hold strategy regarding companies that have had consistent compounded annual growth of over 10% per year for many years. >> well, i mean, i always say to people okay, how can you buy and hold them if they have consistent growth if next year they're not consistent? i've seen this time and again, particularly with technology stocks. a company called digital equipment had that same -- exactly what you said, kept doing it and doing it then it disappears. wang, same thing. doing it, doing it, disappeared. these are all companies i remember that defined that what you just mentioned. and then one day they missed and then they missed and then they missed and then they missed. can't have that happen. going into your golden years? the best is yet to come. learn to make your money work for you. i'll give you advice along the way. more "mad money" ahead, taking things up a notch. i'll let you know when it's

right to double down on what you put in your retirement plan. then the 401(k) gets the hype but there are other ways to make sure you don't have to work until your last breath. i'll lay out your options. plus your tweets just ahead. stick with cramer. you're an at&t small business expert? sure am. my staff could use your help staying in touch with customers. at&t can help you stay connected.

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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 step is to set yourself up for retirement. that's why we're focused on how to use the 401(k) plans and the individual retirement accounts, or i.r.a.s, i'll let you more about using the latter after the break. right now i want to share with you my favorite piece, personally, of 401(k) advice. this is not some abstract idea. it's a tip based on how i manage my own 401(k). unless you think i'm a clown and stooge you know what i am about to tell you is worth hearing. most people will take advantage of the 401(k) plans contribute on a monthly basis and that contribution is automatic, taken out of your paycheck so every month you end up plowing in one-twelfth of your total annual contribution.

people will tell you to leave that alone and passively invest your money over time. i am not up with of them. why not? because there will be times when the market takes a hit, a big hit, a nasty hit and i think you want to capitalize on that in your 401(k). why would you contribute the same amount every single month when stock prices can differ radically from one month to the next would you want to invest the same amount of money when the market is nearing a top as bottom? no, absolutely not. here's how you can take advantage of a big decline in the market because when you're investing for retirement, when you have long time horizon, stock market pullbacks are opportunities to buy, not reasons to weep, moan and tear your hair out. whenever you gate et a 10% decl in the s&p 500, double down in your contribution. that month you put in twice your normal 401(k) contribution. that's right, twice. meaning one-sixth of pla what you plan to invest over the course of the entire year

instead of one-twelfth. you may want to do the same thing the next month, then beyond that you may want to wait. i do this. this is what i do. it may not sound like it would make a lot of difference the lo t long run but it does. if you embrace the one-twelfth solution doubling down wherever the market declines from 10% you will make more money than you would if you passively contributed the same amount every month month after month into your 401(k). just to make sure we're clear here, i'm talking about investing the money in a low cost s&p 500 index fund or if you're using an actively managed fund with a manager who has a long record of consistent outperformance. you probably can't find a mutual fund like that in your perform 401k offerings so it's best to stick with that. but that's what you're doubling down in your contribution to. will this make a huge difference over the course of four or five years? maybe. but over 40 or 50 years it could mean tens or hundreds of thousands of extra dollars because you took the time to

observe what was happening in the market and adjust your 401(k) contributions accordingly. again, actively manage things, not taking that passive approach that no longer flies in the new role of investing pay atoex the market so when you get a 10% decline you can double down and invest twice your normal 401(k) contribution that month to take advantage of the cheaper merchandise out there. when you have long time horizon, you can think of a meaningful decline in stocks as nothing more than a sale. no different than a sale at your local department store. that's the right way to mansion your retirement portfolio. "mad money" is back after this.

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 savings -- your 401(k) plan. now, i've given you all the 401(k)s dos and don'ts and i'm the first person to admit it can be a vital part of setting yourself up for a cozy retirement or even a grandiose ostentatiously wealthy one. why not? but i'm not part of the crowd that says you should max out on your contributions every year. that would mean putting in $18,000 which is the limit on contributions for 2015. no, your 401(k) is important but

it has its downsides, plenty of them. you'll hear people cite high management fees and administrative costs as a problem and they eat away at your retirement capital, no question about it. but for my money, the worst thing about most 401(k) plans is the lack of control over your money and lack of choice over what you can invest in. i believe the best way to invest, as you know, is to buy and diversify portfolio of individual stocks. do home work on each one of them so you know when it's time to buy more and when it's time to sell and when it's time to sell everything, which is very require, by the way. most 401(k) plans don't give you that option. you usually choose between no more than a couple dozen funds, some for stocks and for bonds and even though you can lobby your company's human resources department to add better offerings, most of what you haven't v to choose from isn't that grand. i don't know if i would waste my time trying to change those things. that's okay. it's why we have the i.r.a., meaning individual retirement account not irish republican army. i.r.a. doesn't have the high management fees of a 401(k) plan and lets you invest your money

the way you want to. making it the superior vehicle for your retirement investments. your i.r.a. has the same great tax-deferred status as a 401(k). but with many 401(k) plans your employer will match at least some percentage of your contributions up to a certain point. that's free money. you'd be a full not to take it. but there's usually a cap on how much the company you work for will contribute so here's my rule of thumb for retirement investing. contribute as much money in your 401(k) as needed to get the full company match and then stop right there. at that point, don't put another penny into your 401(k), at least not until you've maxed out your i.r.a. contributions. after you get the full match in your 401(k), put all the rest of the money you're saving for retirement into an individual retirement account. if you want to foe whether to use a regular i.r.a. or roth or the difference between them, may i suggest you a pick up a co copy -- not at your local library -- of stay m"stay mad f

life." more to now we're talking regular i.r.a., you pay no taxes on any gains inside the i.r.a. those profits are alled to compound year after year tax free until you start withdrawing the money in retirement at which point your withdrawals get taxed as regular income. it's still sweet. now you can only pour $5,500 a year into an i.r.a. as of 2014 unless, like me, you're over 50. in case you can contribute -- in that case you can contribute $6,500 a year. you should max this out if you can afford to after you've milked your employer dry with your 401(k). if you do, that you should fund a terrific retirement. if you want to contribute more money you can put it back in your 401(k), however that's after you've maxed out your i.r.a. let me give you the bottom line here. 401(k) plans have a lot going for them but they're deeply flawed. that's why you should only contribute as much money to your 401(k) as it takes to get the full match, after that, your retirement savings should go into an individual retirement account which has much lower fees and flexibility.

if your 401(k) has no employer match, 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. "mad money" is back after the break. show me movies with romance.

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they pile up, we have to get to work. your tweets that you've been sending me @jimcrame me @jimcramer #madtweets. our first tweet -- from -- who asks "how do you take advantage of the correlation among not between stocks, bonds and money markets to steadily grow an i.r.a.?" depends on your age. if you're a younger person, i don't want to see any bonds. what are you going to do? compound 359%? i want to see stock, stocks, stocks. as you get into your middle ages then you can load up in bonds. we need to make money with our money.

we can't do it with the bond market. next. "i'm looking at dividend stocks. when's the best time to purchase and what evaluation do i review?" there's a terrific newsletter at thestreet.com by dave pelletier who tells you which ones are safe and which aren't and he knowsive dividends better than me. "pay off car, house, or invest?" really important. pay off the car, house, let it run. your mortgage can be low. honestly you might get a better return from the good dividends stocks we talk about and get that mortgage money. that's a no brainer for me. the next tweet "what percentage should people save invest from their income a month?" this is one area where people can used a vice. i talk about this all the time.

my advice is you should look at what your discretionary money would be away from just eating, that's the money i want to see put away. in other words, movies, that kind of thing, try it. i did it for two years and i cannot believe how much money i was able to save. up next we have a tweet "how many stocks is too few, too many to own?" we are professionals, we know how to do the analysis that means for you if you're an amateur home gamer, no more than 10. it's too hard. you don't have the time. next question "locked student loans less than 3%, want to invest in dividend stocks instead of paying them." you are brilliant. higher yields and utilities are very good. and the iyr within there there are excellent real estate investment trusts. those are perfect. our next question.

"how much tinkering with a retirement account is too much? are quarterly adjustment changes too much?" i know a bench mark of too much changing around, and that's my fantasy, don't change 26 times a week. that makes no sense, you have to do the home work. if everything you bought is good, don't make changes, we only make changes when our thesis isn't panning out and circumstances have changed not because we want to make changes for the sake of manking changes. next question "do you favor any particular financial advisors?" this is important. the most important advice you'll get from me. find someone else who has one and recommends that person. why? i have discovered that this industry, most people are too small for the big guys. i have been on fights representing people who have $100,000 and don't get any treatment at all of any sort of personal touch so find someone

who has a good person and use that person. i know that sound like i'm punting but it's not. otherwise you won't get the personal touch that's so needed. stick with cramer. e e*trade is all about seizing opportunity. and i'd like to... cut. so i'm gonna take this opportunity to direct. thank you, we'll call you. evening, film noir, smoke, atmosphere... bob... you're a young farmhand and e*trade is your cow.

milk it. e*trade is all about seizing opportunity.

we believe in the power of active management.management, by debating our research to find the best investments. by looking at global and local insights to benefit from different points of view. and by consistently breaking apart risk to focus on long-term value. we actively manage with expertise and conviction. so you can invest with more certainty. mfs. that's the power of active management.

i like to say there's always a bull market somewhere and i promise to find it just for you right here on "mad money." i'm jim cramer and i'll see you next time.

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