upside is something worth playing to break out above 60. >> that does it for us here on "options action" catch us back here next friday at 5:30 eastern time don't go anywhere. "mad money" with jim cramer starts right now 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 save you money. my job isn't just to entertain but to teach you call me at 1-800-743-cnbc. or tweet @jimcramer. every night i come out here for two big reasons. the first is obviously, i like the attention. but the second and more important reason is i want to help you build a preserve your

wealth we live in a world where it's increasingly difficult to become rich if you weren't born that way and love it or hate it i believe the stock market is the best ladder we have in this country for social mobility. there are millions upon millions of people in this country but there simply aren't that many jobs that pay you a salary fat enough to actually make you rich even if you're a total cheapskate and save nearly every single penny you earn. the truth is if you want to become really wealthy in this country unless you're born with a silver spoon in your mouth that means planning your financial strategy for an entire lifetime even if you don't have a super high paying job as long as you can save a decent chunk and invest it wisely year after year, you can make your wealth grow to the point where you become if not filthy rich then at least the very at least financially independent. meaning, you don't need to worry about your job security or where your next paycheck is going to come from and you will be able to retire easily without the need to rely on social security, which for all we know might not

even be around when some of our younger viewers hit retirement age. that's why tonight, tonight i want to help you figure out the best way to manage your money in order to help achieve real financial independence >> house of pleasure >> but in order to do that, we need to talk about the concept of generational investing because the kind of strategies that make sense when you're young and in your 20s are very different from the sort of things you should be doing when you're middle aged or a senior citizen, for that matter we don't talk enough about that on "mad money. tonight's different. but there's one constant when it comes to managing your finances, no matter how old you are and that's the fact that you will never get a better opportunity to make your money than by investing in the stock market. even when we're in a bear market, when the action is treacherous and volatile and it feels like stocks go down every single day, when you take a long-term view, it's easy to see that the stock market is, by far, the most effective method

of wealth creation out there sure, it might go down for weeks, months, even years, it might crash like it does upon occasion, but if you take the long view, the very long view, stocks tend -- excuse me -- stocks tend to go higher and i don't say that as some sort of pollyanna. when i got started in the business, the dow jones industrial average was trading in the 800s and despite multiple bear markets between then and now, the dow currently stands at what you might call well above that mark, right that represents a pretty fantastic amount of wealth creation and that's why i'm so adamant that no matter how old you are, no matter how wealthy you are, you really should have some of your money socked away in this, in the stock market. and for those of you who are concerned that the market's rigged and it's dangerous and it's simply too unreliable or unsafe a place to trust your savings, can i give you some historical perspective right

now? if you go all the way back to 1928, that's right, before the great stock market crash that preceded the great depression, through the end of 2014, the average annual return for the s&p 500, including dividends, is about 10%. show me an asset class with a better average return. you can't do it. stocks aren't just the best game in town, they're the only game in town if your goal is to grow your wealth. for some of you who want to get rich quick, rather than get rich carefully, see what i did there? that 10% annual return for the s&p 500 might not seem like such an impressive number some of you are aying, thanks for nothing. wait a second, you're wrong. forget the fact that it's more than double than what you can expect from a 30-year treasury or positives, i mean, earning that's enough. let's examine that 10% figure in absolute terms when you're taking a long-term view, which is what we're doing tonight, meaning planning for your entire lifetime, racking up

a 10% return from a simple inexpensive s&p 500 index fund, which you know i prefer, starts to seem pretty darn impressive sure, the market's going to have its up years and down years but over a long enough time frame, that 10% figure including dividends has held pretty steady but to understand the value of an asset class that tends to give you a 10% return in an average year you need to view this through the lens of compound interest. i'll talk about this as the magic of compound. think about it like this if you invest $100 in the s&p 500 and it gains 10% in the first year, then you've got $110 after another year of 10% gains, you've got $121. a third year of the same gives you $133 the gains keep getting larger and larger because each year you're making additional money off the previous year's profits. eventually, with a 10% average return, you'll double your money in roughly seven years for those of you who are really

young, right out of college, waiting seven years to double your money, i know, seems like an eternity. and listen, i've got more risky ways of growing your capital faster if you stay tuned however, the truth is, that as you get older and investment that can pretty consistently, you know, take your money up in seven years time and double it, well, i tell you, it just becomes pretty incredible. that said, the matching of compounding works best the younger you are because that means you have more time for your money to grow yet sadly young people are the least likely to be impressed by that kind of steady capital appreciation that's why acclaimed economist george bernard shaw said youth is wasted on the young let me do my best to make these numbers sound more impressive. i'm going to walk you through it suppose you're 22 years old and you're just entering the workforce. you've got more than 40 years before you're expected to retire so, let's say you invest $10,000 in an s&p 500 index fund right now. and let's also suppose that the

next 40 years aren't too different from the last 40 years. in that case, if the average return from the s&p 500 holds steady at around 10%, then in four decades, your $10,000 investment will turn out to be worth more than $450,000 that's enough to send multiple children through college, grad school, buy a nice house in most parts of the country, pay for a huge chunk of a pretty ritzy retirement and that monster multiyear gain didn't require any kind of stock picking. it doesn't require you to trade or time the market or even do any sort of research into individual companies, which i know is hard for most of you you just need to invest your money in a low cost s&p 500 index fund or etf, there's some commissions there. and then you wait. granted, you're waiting 40 years, but $450,000 when you're approaching the age many people

retire, that seems a lot more valuable than the initial $10,000 investment you made when you were young and had your entire work life ahead of you to make money the regular way so, please, i'm begging you, think of it like this. a little money saved and passively invested in the stock market is the easiest way possible when you're young to turn -- can turn into a massive fortune when you're old and have all sorts of additional cost responsibilities and all you have to do if you initially save that money is let it sit on the sidelines. i deideally in a 401(k) or ira you don't have to pay capital gains dividends. the same logic applies if you're 30 or 40 or 50 but you get more bang for your buck if you start younger, which brings me to the bottom line. even if you don't have time to do homework, the stock market is still the best tool out there for growing your wealth and thanks to the magic of compounding, the earlier in your life you start investing in the

market, the bigger your long-term capital gains can be and of course, it's not just -- not just capital gains but also dividends, everything gets reinvested let's go to brenton in new mexico brenton. >> jim cramer, big booyah from the land of enchantment, how are you, sir >> i'm good, how about you. >> caller: i'm doing fine, thank you. general question mutual funds and index funds claim minimizing single stock risk >> right. >> caller: but inherently, though, isn't it fair to say that mutual funds and index funds have other risks that you would have allayed with a single stock portfolio? >> absolutely. and i think that that's why i always suggest that there be two portfolios there should be that capital preservation and somewhat appreciation fund. that is going to be -- we put that aside for retirement and that should be in a diversified fund, preferred to be an index

fund and the rest should be mad money, a sliver of it, though mad money, we pick individual stocks, that's why we call the show "mad money. i don't want the bulk of your portfolio in individual stocks there's too much single stock risk but i want you to be able to pick stocks and i know you want to do it or you wouldn't be watching the show. brian in oklahoma. brian. >> caller: thanks for having me, first time investor. how do you -- how do you value a company -- one company versus another? measure of their value >> well, we spend a lot of time in get rich carefully talking about that, and what you're really trying to do is measure the future earnings streak and if you can measure the future earnings stream, you can figure out what you'll pay for that earnings stream now and what really matters is that if you take a long-term view, you can get a feel for what that stock might be able to give you for dividends and capital gains. dividends tend to be for capital -- you know, preservation and then the capital gains cap is for the appreciation stream. i want you to have a little bit

of both. but you got to be thinking about what a company can earn in the future that's what dictates stock prices this show is about helping you build and preserve your wealth and the stock market is the best tool out there to do that. lot more "mad money" ahead, including the four-letter word of invest -- of the investing world. what it is and why the conventional wisdom about it is all wrong. plus i'm not pulling any punches here what you absolutely must not be doing in your retirement account. and i'm unveiling the rules you need to navigate the bear market, so stay with cramer. >> announcer: don't miss a second of "mad money." follow @jimcramer on twitter have a question? tweet #madtweets send jim an email. or give us a call at 1-800-743-cnbc miss something in head to madmoney.cnbc.com.

>> hi, jim, watch your program every day, i love it >> you are currently coaching three generations of my family >> thank you for being the greatest in my world >> i'm here with my son, jonathan, nine years old and loves your show. >> i love your show. >> i love it when kids are involved >> jim thanks for everything you do for us. >> i want to thank you for all the wonderful advice that you provide us >> we're going to get through this together. we're going to be constructive we're not going to be pessimistic. we believe in diversity and the s&p 500 index fund is the best diversification method ever invented >> our world is a better place with you in it and we thank you for all you do (vo) the hamsters, run hopelessly in their cage. content on their endless quest, to nowhere.

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it's just another way we're working to make your life simple, easy, awesome. go to xfinity.com/moving to get started. tonight we're talking generational investing, meaning how to handle your finances depending on whether you're old or young or somewhere in between. as much as some of us may not want to admit it, the rules in this game can be totally different depending on what age you are. nobody would suggest that a retiree pour all of his or her money into high risk speculative stocks that could have enormous upside potential or go all the way to zero and absolutely wreck

your portfolio but just because some of this may sound straightforward doesn't mean it's obvious or standard which is why i'm taking the time to go over the really important differences depending on where you are in your life cycle. now, i always tell you you need to have two discrete policy cash, your retirement portfolio which is more conservative and should be invested through a 401(k) or ira and is discretionary mad money portfolio where you can start taking risks with your money no matter how old you are, retirement objectives must always come first. i love to play with the discretionary side of things, that's what this show's about but the bet on your retirement is a bet on your own longevity you want to live for a long time and you shouldn't have to work your fingers to the bone that means planning for retirement from the moment you get your first apaycheck. the first $10,000 you invest in

the market should go straight into a low cost index fund or etf that mirrors the s&p 500 index funds are a fabulous way to get exposure without putting in the kind of time or effort that's necessary that like what we do around here, picking individual stocks and if you don't have the time or inclination to pick individual stocks, all of your stock market exposure can come via the index fund that mirrors the s&p 500. i'm fine with that there's no reason this needs to be complicated but it's very important that you actually get yourself some exposure to the market because no other asset class can grow your wealth the way equities do. once you save more than $10,000, that means you have enough money to start a diversified portfolio of five stocks remember, anything less than five stocks, five distinct sectors, you aren't really diversifying you take that money and invest it in individual companies for your retirement portfolio. it's only once you've saved a large enough amount of money for retirement, once you've maxed out the benefit of your 401(k)

and ira plan if you have one that we start talking about that discretionary portfolio where you can afford to take more risks. i want to make this point because a lot of people feel that all i want you to be is in individual stocks that's just wrong. index funds. and then individual stocks now, when you're younger, your retirement portfolio and discretionary portfolio might not look all that different. younger investors can afford to take all sorts of risks with your money that's true for a host of reasons. when you're in your 20s or 30s, if you invest in something risky and it crushes your portfolio, you got a lot of time to make the money back you've lost your whole working life, basically, you got the whole rest -- years and years and years of paychecks however, if you're pushing, approaching retirement, and you lose a fortune in the stock market, that's a real problem and you're going to have very little time to fix it which brings me to my first rule of generational investing not only can younger people afford to take risks with their money that older folks can't, but for those of you who are in

the younger demographic, it's imperative that you take those risks. now you shouldn't go crazy and speculate and blow all your savings. that retirement portfolio is off limits but you should devote some part of your discretionary mad money portfolio to betting on these high risk long shots. i know i'm out there saying this stuff but i believe in this. i'm talking about smaller, less well known companies with massive upside potential coupled with enormous downside risk if things go wrong. this is for the younger coworker the classic examples here are the development stage biotech stocks which can fly through the roof or even just a piece of positive data on a drug that's years away from hitting the market by the same token, these small biotechs will get slammed with negative news and their stocks can be very difficult to own in more negative markets because they don't have any dividend protection or earnings protection however we're talking about long-term investing here, looking for good opportunities that can work regardless of whether we're in a bull or bean

market and there are plenty of speculative companies that have nothing to do with the drug business why do i insist that younger investors speculate, take risks that might scare older people? because the gains here can be absolutely stunning. and it would be downright foolish to pass up the opportunity to own the winners, even if it means picking some losers along the way when you're in your 20s and 30s you should be investing like a young person, not an old man that means taking at least a few kinds of risks let me give you an example that sheds light on the situation when "mad money" came on the air in 2005 our first ceo interview was with dr. len with a tiny biotech company trading around $5 a share at the time it was a biotech that had been kicking around for 17 years 17 years without ever really developing anything noteworthy that could move the needle. since then, though, this company has become a powerhouse with the stock taking off into the stratosphere based on the

surprising strength of its block ba buster macular degeneration formula and continuing to roar in a number of therapies fast forward ten years to the summer of 2015, and regenero stock had traded up to $592 before getting slammed by a market-wide selloff but for the sake of using round numbers in this example, let's call it $500, ten years ago, could have bought regenero, speculation, $5 what would happen with that $500 how about this a gain of roughly 9999%. not a double, not a triple, not a quadruple. no, regenero's a ten bagger but you never could have gotten in on that gigantic gain if you hadn't taken a risk in 2005 and bought a company with no products and only the promises of the ceo that it would work out. many small cap biotechs have

done nothing or lost enormous sums or longer periods, some have been kicking around you won't always be able to identify who are the winners in this space but that's okay as long as you cast a wide net and speculate. take a small position, nine of them are going to zero as long as the tenth one was regenero, you still would have made a monster gain. this should only be one small part of your diversified "mad money" portfolio but it absolutely belongs there because the risk-reward of trying to find these speculative winners absolutely makes sense when you're young for older investors, though, speculation is much more risky game and i only recommend playing it with excess cash that you absolutely can afford to lose here's the bottom line remember to speculate while you're still young enough to be able to take the hit when something goes wrong as long as your disciplined and it makes a small part of your discretionary portfolio, not your retirement portfolio, then it's absolutely worth hunting

for the next regeneron without hesitation much more mad ahead. i've got answers to stocks or bonds, the age old wisdom you've heard is wrong and i'm about to rewrite the script plus the game plan you need to follow in the bear market and it's the most important piece of advice about financial health i could ever give you. many of you will have to take action tomorrow. don't miss this. stick with cramer. hmm. exactly.

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it's time to address a major issue that i have to admit i don't spend enough time discussing here on "mad money. i'm talking about the question of stocks versus bonds now, there's good reason why you don't hear me recommending that you invest in bonds very often and it's not just because the show is about stocks the fact is, ever since the great recession, interest rates have been held down to incredibly low levels and therefore bond yields like the return you get from owning, say, u.s. treasuries have been absolutely paltry both by historical standards and versus what you can get from safe dividend paying stocks in general, for the last few years, even when the stock market has been getting absolutely pounded, bonds simply haven't represented very good values versus equities

that's why i've so often castigated you about the idea that excessive prudence can be the most reckless strategy of all, because if you invest too much of your money in safe, virtually risk-free u.s. treasury bonds, you've basically been ensuring that you'll get a very low return on your investment for many years to come all in all, if you want to grow your capital and after all that's what investing is supposed to be about, then like i've said before, stocks are still really the only game in town, even after, what can i say, so many years however, i don't want to make it sound like i'm poo pooing bonds altogether there's absolutely a place for bonds in your portfolio. it's an essential place, especially at as you get older even though i believe stocks are the best way for you to grow your capital over the long-term, even in moments when u.s. treasury yields are at historically low levels, at the end of the day, stock investing and bond investmenting are

entirely different things. stocks are the tool you use for capital appreciation, meaning turn your money into more money. but bonds are all about capital preservation, they protect your money and give you a nice and steady albeit small return that's still big enough to offset the impact of inflation for the most part. you invest in stocks so you can risk your wealth you have to generate even greater wealth that's what it is. you invest in bonds to protect whatever part of your wealth you simply can't afford to lose. there it is. which brings me to the generational investing aspect of this question. depending on how old you are there's a huge difference in how you should approach the very idea of putting your money into bonds. when you're young, investing is all about taking risks so you can get better returns i've already explained how people in their 20s and 30s can get away with that attitude because you've got the rest of your working life to make back any potential losses but as you get older you'll have more and more wealth that you simply can't afford to lose it, especially in your retirement accounts now, bonds are a staple of saving for retirement because u.s. treasuries are the closest

things to a risk-free investment out there but most financial experts will tell you that you need to own a lot more bonds a lot earlier in your lifetime than i think is truly necessary. you'll never get rich from owning treasuries, though. even if you invest in 30-year u.s. treasuries our government's longest bonds with the highest yields, they don't produce much in the way of capital appreciation let's say for the sake of this example that 30 year treasury bonds are yielding 3.5%, relatively low level for historical standards, much higher than the 2.5% we saw in the first nine months of 2015. with that 3.5% yield as long as you reinvest your coupon payments back into treasuries you might double your money in 20 years remember the average historical return for the s&p 500, the benchmark for u.s. stocks, is 10% annually, which will let you double your money in a little more than seven years so if you're under the age of 35 and you own a bunch of bonds, with the idea that they'll slowly but steadily make you money, i think

you're being way too cautious. i know it puts me out there but you know what? i've been around that's how i feel. even if your 401(k) and your ira, you want to be very heavily weighted towards stocks while you're young particularly because these tax advantage retirement vehicles allow you to avoid paying capital gains taxes or dividend taxes, allowing your gains to compound year after year after year but as you get older, opening treasuries becomes essential because unlike the stock market where you can lose enormous amounts of money in the blink of an eye, bonds really are safe. once you've used the stock market to make yourself financially independent you want to funnel more of your money into u.s. treasuries where you know your investment won't somehow vanish overnight ideally you put your cash in a cheap bond fund that mirrors the yield you get from long-term treasuries let's get down to brass tacks. it depends on how old you are. i'm going to give you my rule of thumb. i don't think your retirement

fund should have any bond exposure whatsoever until you turn 30. if you own bonds at the age of 25, you're wasting your youth. it's better to put your capital to work in the stock market where it can actually grow in your 30s, i'm going to let you keep 10% of your retirement fund in bonds or 20% if you're on the conservative side once you're in your 40s, i think you can go up to 20% to 30% bonds. in your 50s, i say 30% to 40% and in your 60s, as you approach retirement age, all right, take it up to 40% to 50%. that's right 40% to 50% bonds now even if you retire, though, you know what? i still think you should keep a substantial chunk of your portfolio in the stock market. post retirement, my recommendation is that you increase your bond exposure to 60% to 07% becau70% because onco working you can't afford to take too many losses with your investments especially since you're going to need to start spending the money in your retirement accounts. but that said, i still think

keeping roughly a third of your money in stocks makes sense even for a retiree because you're going to be living off your investments for the rest of your life so some part of your portfolio should always be trying to create more wealth in case you live longer than you expect and need more money to support yourself in other words, going all in on bonds, once you've retired, is a bet against your own longevity who the heck wants to take that kind of bet? here's the bottom line for younger investors, putting your money in bonds is a fool's game but as you get older, you should gradually increase your retirement's fund's bond exposure to the point where 40% to 50% is in u.s. treasuries but even if you retire, you should keep owning some stocks so that some piece of your capital can continue to appreciate over the long-term. best case, you live a very long time and that extra money, it comes in handy let's take some questions. how about nassir in

pennsylvania. >> caller: booyah, jim >> how are you >> caller: i'm good. big fan of the show. thank you for taking my call >> of course. >> caller: and i love your book, "get rich carefully. i'm looking for advice today on how to determine an entry price for a stock, especially if i'm looking to start a core position given how everyone cost basis averaging is >> this is a great question because a lot of people feel like they want to draw a line in the sand they want to make what i call a statement buy or they just want to be in a position where they kind of got rid of it, they bought it and they put it away that's why i say take into account human frailty. the most i ever like to buy at one point is half of my position i prefer to buy a quarter. if the stock goes higher, well, what a terrible high quality problem. if it goes lower, you got room to buy i like to buy in stages. in all my books i talk about stage buying because i don't want to be overconfident don't you be overconfident do it in stages. brian in new york.

>> caller: hey, jim, how are you? >> i'm fine, how you doing. >> caller: i have a 401(k) plan from a previous employer and i'm trying to decide whether to put it in an annuity managed by an insurance company or if i should just put it in a traditional ira. >> i want you to run it yourself i mean, you watch the show i think you can do it yourself the annuities have fees. look, i'm not against anything that makes it so that people can build wealth, but my experience has been that a lot of annuities have fees that eat things up maybe there's some that don't but i believe in self-directed investing when it comes for that and if you have to, you can put it in an index fund if you do have time but i like to take control of my investments. an ira lets you do that. listen, investing in stocks and bonds are two very different things as you get older, you can gradually add exposure to bonds but young investors, you just don't belong in bonds. still much more "mad money" ahead including the playbook for when a bear market takes a bite

of your money. if you want to ensure strong retirement you're going to want to listen to my advice and take action tomorrow morning. don't miss it. and i'm answering the questions you've been sending me on twitter, so why don't you stay cramer

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tonight rather than focusing on the day-to-day vicissitudes of the stock market i want to help you take a longer view, plan out how you can invest for a lifetime that means taking a much longer time horizon than we usually discuss on "mad money" and when i say longer i'm talking about

taking a 20, 30, 40 or even a 50 year view. of course there's no such thing as a stock you can buy and hold for the next decade or two doesn't work like that i wish it were that easy it's not regular viewers know my mantra it's buy and homework, not buy and hold which means that no matter how confident you are in a company you need to keep checking up on it on a regular basis. however just because you can't pick a few stocks and ignore them it doesn't mean it's impossible to take a truly long-term view you simply need to zoom out a bit and when you start examining stocks over a multidecade time horizon one thing becomes readily apparent, if you know what you're doing, a bear market can simply be a different kind of opportunity that's right when stocks are getting slammed, when they're getting hit everywhere you look, when it seems like the losses will be endless, when the shares of individual companies can't even mount significant rallies in the face of incredibly positive news, definition of a bear market, frankly, you have to recognize that you can be getting a terrific opportunity

to pick up some high quality stocks for the long run into the weeds. now understand i'm not giving you a license to buy stocks indiscriminately but what i am saying is that when you're faced with a bear market, meaning when the averages are down by more than 10%, let's use that as the parlance on the show, from their highs, and they seem like they could go even lower than it probably makes more sense to start buying those stocks rather than selling them as long as you're willing to take some short-term pain for long-term gain of course whenever you buy during a bear market you need to be very careful. that means you never buy a position all at once that's pure arrogance. you know i say that all the time and you just ask yourself to look like a moron if that stock keeps going lower. instead gradually leg into your favorite stocks buying small chunks of your position incrementally on the way down, humility, please in a bear market you want to use even wider scales meaning after you make a purchase you got to wait for that stock to go down pretty meaningfully and substantially before you buy more over the very long-term you'll find that you've taken advantage of a terrific opportunity that

most people were too afraid to pounce on but i need you to think longer term. something we didn't do at the beginning of the show but we're way past that now. just look at this chart of the s&p 500. hideous declines during the financial crisis in 2008, 2009 if you use that weakness to very gradually build a position in a cheap s&p 500 mutual fund on the way down, then within a couple of years you've made a killing how about that nasty bear of 2011 we snapped back from those losses even more rapidly by the way this is wie warren buffett always seems so sanguine when the market is getting crushed. he has an incredibly long time horizon and enough money that he can afford to take any pain to get his hands on gains if you're a hedge fund manager who absolutely needs to be up for the year or for the day for all that matter because investors will flee your business, then you cannot afford -- if a hedge fund

manager keeps buying gradually into weakness in a difficult environment you'll lose enough money in a short enough period of time that the fund will likely go under. go read "confessions of a street addict" when things got tough for me the vast majority of you are not running hedge funds. you don't need to make money every day or even every month or year you need a long-term strategy to let you rake in massive multiyear gains over the rest of your lifetime so you have enough money to retire comfortably, send your kids to college and that means you don't need to be so concerned with short-term performance. again this is not an excuse to hang on to loser stocks of loser companies simply because you hope that one day eventually they'll turn around. my point is that the ugliest most vicious markets that send everything down, the good with the bad, they will always create opportunities for smart investors as long as you're patient enough to take advantage of them slowly because if you pounce too quickly, you'll end up buying way too close to the top. the other caveat, if you're not simply playing with an s&p 500 index fund then you have to be careful about what stocks you

pick during a bear market. make sure you own the stocks of companies that are doing well, good balance sheets or at least the companies that are doing okay but could do better in a stronger environment during a bear market you must absolutely not buy the stocks that are right in the blast radius of whatever's causing the decline. think the banks in 2008, 2009, oil and natural gas, resource plays that led -- that started going down and literally in the fall of 2014 you don't want to own the companies that are causing the weakness instead you should search for collateral damage stocks simply because everything is being taken lower by the s&p 500 futures and the etfs that crush entire sectors and if you own anything in the blast zone, please don't hesitate to sell and swap into something that's safer. oh, one more very important point, if you want to take advantage of a monster decline to do some buying, you absolutely need to have some cash on the sidelines in order to make your move. otherwise, you'll just be shuffling money between different stocks all of which are going lower. that's why i'm so adamant that you have some cash in your

portfolio and the better the market's doing, the bigger your cash position should be. that's right the better, the bigger that way when things inevitably go wrong you'll be able to use the weakness of stocks you like at bargain basement prices so when you approach the stock market with a truly long-term time horizon, you have to remember that big bear market declines can actually turn out to be excellent buying opportunities, as we've seen since we started the show. as long as you only purchase high-quality merchandise in small increments on the way down stick with cramer. this is hal.

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♪ all night i've within telling you about the best way to approach investing from a long life, long generational perspective. how to manage your money when you're young, when you're middle aged, hey, when you -- haven't you heard 60 is the new 50 and even once you've retired but there's another aspect of generational investing that i really got to stress here and that's the need to get your kids interested in managing their own money more generally and learning about the stock market particularly i say this to parents with children of all ages, while i love the public school system, you simply cannot rely on the public schools or even these ritzy private schools for that matter to teach your kids about money. okay, they can do a bang-up job with english, history, biology, chemistry, physics, calculus, whatever you want your kids to become client in a foreign language great. the typical high school can teach you spanish, french, and the fancy ones teach you chinese. however, if you want your children to become fluent in the language of finance, you're going to have to do it yourself. i get the sense that personal finance is viewed as being too

simple, too quo didian for most educators to bother with it's beneath them. your typical high school health class will help kids learn how to put a condom on a banana. but nobody's going to explain why it's dangerous to maintain an outstanding balance on their future credit card bills and believe me, you can't wait until after your kids go to college to teach them this stuff because at most institutions of higher education, students get bombarded with credit card offers that can seem irresistible throwing thousands of dollars of credit card debt on top of student loans and they could be in the hole for decades which means you the parents will need to bail them out we don't want that yet raising financially responsible children isn't just about being a good parent. it's about not getting hit up for cash every month even when your kids are well into their 30s. if you want your children to learn about money, and what parent doesn't want financially responsible children, then at this point you need to do it

yourself that means you need to have some long, boring conversations about the dangers of high interest rate debt like the kind anyone can easily rack up on a credit card and the need to save money coupled with the power of compound interest for generating wealth like we talked about earlier. but in my view, the way to make all this dull personal finance medicine go down is with a spoonful of stock picking sugar. in other words starting at a fairly early age i recommend giving your children gifts of stock and high quality companies that resonate with young people. my classic example here, i've been using it since the show started, is disney give them a couple of shares a year for the holidays starting when they're old enough to appreciate the big movie franchises, "frozen," "star wars," whatever. because disney has so many blockbuster films going for them planned over many years in the future, not to mention a theme park business and total properties, i think that disney holdings will show a nice gain there is no better way to demonstrate the power of saving money and investing in stocks

than having your children actually make money in the stock market themselves and follow it along. and look, as much as i like disney, you don't have to go with mickey mouse. it could be any high quality company that will resonate with somebody who's still in elementary school. here's the bottom line the point of getting your kids interested in stocks early is simply that you need to teach them a better way to think about money. rather than viewing cash as something to be spent, you want your children to learn that money is something that can be saved and invested, which creates still more money, at the earliest possible age. and look, if you don't want to do this for your children, do it for yourself because kids that can manage their own finances with kids who won't be begging you for moo la after you've gone into retirement. stick with cramer. someone mi my bladder leak underwear.

so, i switched. to always discreet boutique. its shape-hugging threads smooth out the back. so it fits better than depend. and no one notices. always discreet.

okay, cramerica, it's time for me to check out the twittersphere and take a look at some of the tweets you sent, @jimcramer first up, we have @fridge who says you talk in your book about research what are a few pieces of information we should look for when stock picking the first thing is i want you to know the product i want you to know what it does and i want you to like it. the reason why is because a lot of times stocks go down after you buy them and if you like the product you'll be more inclined not to panic and get out and after that, you can read

in "get rich carefully," tell you how to rate a stock, do it on a number basis and just figure out where it should stand versus others but you've got to like the company first or i promise you in the first big selloff you'll become a seller, not a buyer. i don't want that. okay the next question is from patrick sutera jim, for retirement, is it best to dollar cost average index funds or wait and buy on market downturns/madtweets. this is really important here's the way i do it i try to do it 1/12 a month if i can, each month, but if there's a big break in the stock market, i accelerate some that i would do later in the year and put them to work in that break, even up to a third of it. so in other words i like to take advantage of the declines and

accelerate what i put in and i've done that for years and years and it's really worked for me otherwise, divide by 12. next up is larry this morning, my wife said what would they do without cramer my wife said the same thing. all right. now, look, you know, i'm a teacher, i got some books, i try to come out here every night but it's really important for people to know what you need to do, what would you do without yourself this is about empowering you it's not about giving you ideas. it's about how to look at them a lot of people look at this show who haven't watched it over the evolution and say, oh, he tells you, you know, trade in and out of this or that. i hope that you know that it's the opposite longer term investing is the way to make money. index funds and then "mad money" and doing homework and trying to figure out how to do it yourself last is jeffery hope jim, would you mind sharing your sunday stock routine, please all right.

i have a i get this thing from standard and poor's, it's pushed to me via email. it's hundreds and hundreds of charts i go over each one i have a file that says, good, bad, question mark, try to figure out why that went up and then story idea for show and i write down each one and where they are and where they fit and when i'm done i tend to do a piece for real money, a long piece, that's the paid side of the street where i look at what trends i see and then for the rest of the week, i send my staff which stocks i don't understand and why and some theories about why we should be doing certain pieces and it takes up almost all sunday except for when the eagles are playing. stick with cramer. but perhaps this year, a more exhilarating endeavor awaits.

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like the old "tunic tug". but always discreet is less bulky. and it really protects. 'cause it turns liquid to gel. so i have nothing to hide. always discreet. i like to say there's always a bull market somewhere and i promise i would 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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