>> energy has been a hot topic all over the air waves. that does it for "options action." a special series "mad money back to school with jim cramer" starts right now. have a good long weekend. my mission is simple, to making money. i am here to level the playing field for all investors. i promise to help you find. mad money, starts now. >> welcome to mad money. i am just trying to help you make some money. my job is not just to entertain but to teach you. call me at the number on the screen. there is a gaping hole in the american education system. i

hesitate to call the system. when you go to high school, teacher chemistry and geometry and physics. english classes in history classes. you can graduate speaking three languages with a deep understanding of quantum physics or ancient philosophy. the one thing they almost never teach you in middle school or high school, financial literacy. i am not talking about economics. you can be in econ major but learned nothing about financial planning or retirement readiness let alone investing. money is just not talked about. and has become the third rail of american education. your 1000 times more likely to read marxist -- than do anything about planning a budget. that is why am on a constant mission to teach you how to manage your money. that is what we do every day in the investing club. providing a constant source of examples. when it comes to managing money

nothing is more important than retirement sooner or later you will stop working. hopefully sooner rather than later, unless you love your job. i bet most of you have some money in a 401(k) decades ago, corporate pension started going the way of the dodo and now the 401(k) is the main way american safe. they are offered by an employer and are among the greatest tax deferred investment vehicles out there. along with an ira. i mean the individual retirement account. for those of you that are about to change the channel because the idea of saving puts you to sleep, hear me out. you need to know this. your future self will thank you. you may think you know everything you need to know about these accounts, the truth is, there is a lot the experts don't tell you or don't want you to know. for example, wisdom said you must invest,

you would be a fool not to. many experts advise you to max out every year if you can afford to. right now the maximum contribution is $20,000 with room for an additional seven grand if you are over 50. it tends to rise over time. in 2004, inflation was $13,000 by 2023 is $22,500. even with these contributions coming from pretax income. sometimes it's the wrong approach. i'm not going to sing the praises of the 401(k) or tell you what is the key to salvation. they can be a mixed bag. they have a couple of great features but they also have bad ones. the problematic features will eat away at your return. sometimes through fees that are almost totally hidden. i do not like that. let me lay out the good, bad and ugly. then i will tell you whether it makes sense to contribute more

or maybe there's a better way to invest. first the good, the best thing about 401(k) is it is tax- deferred. that means you pay no taxes on what you put into many never pay a penny of capital gains on the profit which allows the gains to compound. until you make withdrawals. i'm a huge believer in the power of compounding. suppose you're 30 and invest $5000 in your 401(k). if you choose wisely should be able to generate 7% per year. that is pretty conservative. at that pace, over the next 30 years, you will contribute $150,000. because that is able to compound without any capital gains tax, by the time you're

60, those contributions should be worth over $511,000. without the taxpayer status it would be $110,000 lower. you only ever pay taxes on it once when you withdraw. at that point since you are likely retired, most of you will pay a lower rate than what you get hit with if you are taxed on that money while you're in the workforce. that is one huge reason to like them. the other, many employers match were partially match contributions. for every dollar you invest, your employer might throw him $.50 up to a certain point. that is free money. if your employer even partially matches, you should absolutely take advantage by putting money in. i'm not saying take the money and run but definitely take money.

if it doesn't have an employer match is much less compelling. 401(k) plans can have problems. without the match, sometimes you better off saving with an individual retirement account. it's the same tax favored status. you can only contribute $6500 per year or $7500 per year if you are over 50. they have reached the limits and they rolled out the increase hasn't kept pace with inflation. if it had it would be more than $8500. i personally wanted to go to $10,000. i will make it my mission to get that there are ways to better yourself. when you change jobs you can rollover the money into an ira, that is what you should do every time you switch employers or find yourself out of work. what makes an ira k when you invest in a mutual fund, you have to pay the fees. your 401(k) administrator, company the employer hires,

will charge you the room fees. on average, take more than 2%. i find that extortion. most funds charge less than 2%. they are actively managing your money. if you ever look at the statement wonder why your holdings on increasing like they should, but these are probably the reason. second, 401(k) plans very. some give you a terrific range of choices and what you pick stocks and others are more limited. they only give you the choice of a couple of dozen funds. for those of you can't pick your own stocks, before you contribute, make sure gives the option to put your cash into something that is worth investing in. i spend so much time teaching this because i believe it works. you should be skeptical of retirement and it doesn't give you that option to buy individual stock.

if you can't pick your own stock, anyone a lower expense index fund. one that mimics the s&p 500. your 401(k) doesn't offer that or charges fees, and go with a self-directed ira for a full service discount. fidelity or merrill lynch. that we have control over your money. the bottom line, if the company you work for matches contributions up to a certain point, take them for all their worth. other than that, an ira is the superior way to go. especially if it doesn't give any good investment option. let's go to in in illinois. >> i'm doing well. my goal is to get out of my mind high five as soon as possible and retire. how should younger investors think about the balance between growth stocks versus dividend connect

>> is a great question. a younger person should be almost entirely in stock. i have been on the extreme. over the last 40 years, that has been the way to go. let's forget about the bond you get to at least the mid-50s. then add them slowly. you are a stock i. don't bet against your life. let's go to michelle in new hampshire. >> i could use your advice. my portfolio was doing fine before inflation or the interest rate hikes. now is all red. i need some tips on how to manage the investments. >> we want to ride through down markets. cash away regardless. we are not going to look at the day today, it's a month if it comes to retirement, even year- to-year. we want the right stocks but we are not stopping to contribute.

historically, rain does go away. if you only invest when it is good, you will end up with not good prices. carl in washington. >> thank you for having me on. for novice investor, what tools and methods would you recommend? besides the obvious p/e ratio, how do i evaluate companies for good investment connect >> what we do with the investing club, it is about that. we say the many different ways to of how to evaluate stock and pick the ones that are most suitable for you. we can't do that, that is up to you. we evaluate them and overall, against other stocks in that same peer group and in the market. if the company worked for matches contributions up to a certain point, take them for all their worth, other than that, an ira is superior.

especially if you plan doesn't give you any good investment options. i'm to take you to all of my top tips to help develop a strong financial foundation. you are not going to want to miss this one. have a question, tweet cramer. or send him an email . or give us a call. if you missed something, head to the website. ♪ (upbeat music) ♪

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if everyone in the country lost their minds and decided to turn america into cramer, i would make changes. what would the 18th premiere look like in for those of you that didn't get the reference, -- is your best friend. let's stick to the mainstream elements. treisman enough that we don't teach young people to handle money. would be so crazy if you had to take a class on finance before you could graduate high school.'s or classes that you show you how to dissect a frog so can i speak some words that we all believe but rarely get to say in polite conversation. it is important. caring about finances does not seem superficial. maybe you have a lousy credit score and want to get married. you just inflicted your credit on your spouse. neither you nor your partner

can qualify for a loan for a car or home or even get a credit card. beast things matter. >>, wisdom to be dubious at best. being broke is a buzz kill. as i know firsthand from the time i lived in my 78 ford fairmont, i wish i had an expert to guide me back then. though i still put money away when i lived in my car. one of the most important questions, what should young people do with their money. first, you need to invest. it is the only way you can achieve financial freedom. by freedom i mean not totally dependent on the next paycheck. teaching you how to do this is one of the reasons i put so much time in creating the cnbc investing club. many people start saving and

investing too late and making their lives much more difficult as they get older. also many young people feel they have all the time in the world.'s many more start investing before they are ready. when they are in fact better things to do with their money. that is why have three lessons for all of those recently out of college. listen. before you can invest, pay off credit cards. this is especially true for younger people. banks have gotten aggressive about offering credit college students. the matter how much you rack up in stock market, credit cards will eat return. long-term interest will be greater than the profit you can make from investing. just pay the credit card balance in full. automated. when i got out of law school, i maxed out half a dozen credit cards.

i took a job at goldman sachs and made good money but not enough to pay the interest. and be able to afford the biggest boombox in the world which was my first priority. i pay down the debt and got my dream box a few months later. i will never forget how proud he was without on my shoulder in the breeze. the point, credit card debt is -- . even if you hit it out of the park. they are the house. they win and you lose. straighten my few lessons, this is for everyone, regardless of age or education. especially for fresh college graduates. you need to save money. i recognize not everyone is previsit disposition to save. nobody likes being nagged. i am sorry. the stock market is a great way to trick yourself into saving part of your paycheck. you might otherwise go spend. investing in stock can be fun.

leaving money in a savings account or certificate of deposit feels joyless, even when they are giving decent interest. if you invest, it is a lot easier to resist the temptation to spend that money on things you don't need. you would have to sell your favorite stock to get the cash back. it is a great way to keep you money in and not out in a way i don't make will ever help. second lesson for younger investors, while you are young you can afford to take risks and say someone like myself. when you're in your 20s you can get away with reckless strategy like awning -- or the potential upside and the downside or you can play with options. it is not because young people are better speculators, it is because when you make a mistake with your money in your 20s, you have the rest of your life to fix it. losing money is less of a

problem when you 40 years to earn back. older investors need to -- . you have to have bonds. higher-yielding stock and utility. fewer speculator stocks in single digits. and he were 20s, -- i get to call some people think i have a 40% bond because i'm 22. you should know any bond. young people get to take this to heart. -- are the ones that are most responsible. when you're putting together a budget or deciding how much to save. for young investors being too prudent is actually reckless. twentysomethings, live a little. take risk. play around. maybe my some tiny biotech companies.

even if they go to 0 you have the rest of your life turned money back. stocks do stop at zero. that endless cannot but you can't save until you pay off that student loan, i chose to invest. after paying credit cards i invested knowing i could eat the student loan. i did not pay that an early. don't be hurried. i would rather have you invest now and pay later. plus democrats will keep pushing student loan forgiveness. you might end up paying less. finally, it is never too early to invest for retirement. use your 401(k). also put money into a roth ira. that is a good deal for young investors. bottom line, for young people

out of college, investing is a great way to trick yourself into saving money that you might otherwise spend. when you are young you can take a lot more risk. it is never too soon to contribute to your 401(k) or ira, especially an ira that is a roth.

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♪ ("drumroll" by lónis, little league ) ♪ ( ♪ ♪ ) ♪ this just in ♪ ♪ got the keys to what you want and what you need ♪ ♪ something new something sweet ♪ ♪ moving to a different beat ♪ ♪ okay now (what?) ♪ ♪ can i get a (get a) drumroll? (what?) ♪ ♪ can i get a drumroll drumroll? (what?) ♪ ♪ can i get a can i get a drumroll please (oohh) ♪ ♪ that's nice (yahh) ♪

( ♪ ♪ ) ♪ ya, can i get a drumroll, can i get a drum- ♪ ♪ that's nice ♪ ♪ (upbeat music) ♪ ( ♪♪ ) constant contact's advanced automation lets you send the right message at the right time, every time. ( ♪♪ ) constant contact. helping the small stand tall. you live in a world we have more choices about investing them before. more choice is not always better. sometimes having more options makes it impossible to decide what is right and which is wrong. you have never had more options when it comes to picking exchange funds and mutual funds in right now. they are everywhere. at this point, there are so

many kinds that can make your head spin. the companies that run the funds want your money. one of the biggest mistakes is to give it to them with a few exceptions. it is also one of the common mistakes out there. most people should equate investing with money and mutual funds. thumb have exposure to mutual funds. a lot of 401(k) plans don't let you pick stock. to just give a menu of mutual funds. that is why i prefer iras. that is why i spend so much time teaching you how, both on the show and in the investing club. i am going to walk you through that process, every day. what is so bad about mutual funds q simple. you are most likely getting a bad deal. there are some worthwhile funds.

i will tell you how to find them in a minute. first, you need to understand that problem. my main beef is with actively managed funds. funds where people are deciding which to buy or sell. unlike hedge funds, mutual fund managers don't get paid for the group performance. they collect fees from investors, people like you. the amount of money they make depends on the size of the management. that means the biggest incentive is not necessarily good performance, with there being good at what they are paid for is to fund raise. that is part of the reason why in study after study and year- to-year, it is the vast majority of mutual fund managers underperform their benchmarks. if you invest in an actively managed funds, it will probably fall short of the s&p 500.

's actively managed funds have some of the highest fees in the business. even if it does match the benchmark caveats are good but any outperformance will be eaten up by management fees and you will get an investment that makes you less money than a cheap index fund. that is some industry. at my phone be compounded 24% annually. it was every second about the fees and chose not to take them during a year when i was only up a couple of percent. i was not ashamed. did a mutual fund manager do that for you? i would say mitel too much autobiography. here is why think not all actively managed funds are bad. some have fabulous managers that live with true results.

even here there is a problem. when a fund delivers great results for a long time, if the manager is decent, they will stop accepting new investments. that they get too big, it is impossible to generate the same game. a lot of these funds are out there but they don't take the money. if the manager is a not so great person they will keep taking more so the performance suffers. the father of the index fund asked me how i could beat the average so consistently, i said a limited investors. i made it like a club we had to be nominated. that minute was never overwhelmed with new money. something that often leads to bad decisions. he praised me and i love that. is that if everyone did that they would have much better records too. maybe that was the real secret. if you want to know the other secret to success, that is what we teach at the investing club. for the most part, funds are not worth it. fees are too high. the evidence that the bulk underperform is staggering. regular viewers know that the best tragedy is to pay a low

fee fund with a portfolio of stocks you pick yourself. that is what i talk about night after night. for those of you that don't have the time to research companies or if your 401(k) just won't let you, let me tell you the smart way to invest. you want a cheap low cost fund that mirrors the market as a whole. one that mimics -- . the funds have low fees. with the s&p fund it will let you participate without having to spend that time picking individual stock. the whole point of money in the fund is to save you the time and effort of going to manage your own stock. that is why think it is insane when people start owning multiple funds. by its nature, fund should be diversified. there are lots of sector-based funds out there. there is really no reason for -- like you to have any exposure. if you're going to take the time to play individual sectors, that time would be much bent better picking

individual stock. these vehicles are for training, not investing. i am not in favor that. many etf's rebalance every day. that can take a real toll on any kind of long-term performance. you can lose a lot of money, even if you are right. there are plenty of exceptions with the geo team. i also like what mimics the s&p 500. if you are not a pro, you should be very careful about fooling around with this stuff. here is the bottom line. at the end of the day, a cheap s&p 500 fund is the least bad way to passively manage money. better than the bulk of actively managed mutual funds. and index fund owns everything, good, bad and the ugly. if you have time to do your homework, i believe you can beat that performance i picking the stock yourself. maybe leaving the bad and ugly out of it. you can stick with the index

fund or join the investing club. let's go to eric and tennessee. >> this is eric from park city. my question is in regard to fundamental valuation of stock. if you only had access to four cases, what measurements would you look at? >> tablet sales, earnings, margin and total -- of market. all of those will give me a sense of what i would be thinking provided there was historical data. let's go to kate in georgia. >> if you have a diversified portfolio, it is okay to be having a certain sector? is it favored? >> i would tell you you can do it but not by much.'s you don't know what will happen. there are times when oil is -- . i say i really shouldn't and

oil spikes. the first thing i do is try to get it right back down. i am uncomfortable being overweighted in any industry. i do believe the diversified portfolio over the long term will outperform one that isn't. 's i wanted to thank you for your show. it has been a great learning experience for me. i wanted to ask a question here, i know joe is here, i'm huge on fundamental analysis and use them to make investment decisions. the question, even though company showing strong fundamental, is it a good idea to incorporate technical analysis as well? >> everything should be

included. whatever makes decisions and a lot of managers use the decisions and use technicals, that means you should include that into your thinking too. all available information should go into that decision- making. and index fund owns everything. if you have time to do your own homework, you can beat the performance by picking stock yourself. i'm giving you the lowdown on financial security for college and later retirement. later my colleague will join me to answer more burning questions. stay with cramer.

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to your top eligible spend category, up to $500 spent each billing cycle with the citi custom cash® card. i love it. the first time you made a sale online with godaddy was also the first time you heard of a town named dinosaur, colorado. we just got an order from dinosaur, colorado. start an easy to build, powerful website for free with a partner that always puts you first. start for free at godaddy.com here's why you should switch fo to duckduckgo on all your devie duckduckgo comes with a built n engine like google, but it's pi

and doesn't spy on your searchs and duckduckgo lets you browse like chrome, but it blocks cooi and creepy ads that follow youa from google and other companie. and there's no catch, it's fre. we make money from ads, but they don't follow you aroud join the millions of people taking back their privacy by downloading duckduckgo on all your devices today. no matter how good you are picking stock, if you don't know the rules about what kind of accounts to keep money in or how to manage personal finances and how to get the most bang for your buck when it comes to major expenses, you could be missing out on terrific gains were losing a fortune to hidden fees.

i admit it's not as much fun as picking stock. the simple truth, i don't want you leaving money on the table because no one can be bothered to explain it to you. that in mind, let me explain whether it makes sense to use a regular 401(k) or an ira. i know i have talked about the benefits of using individual retirement accounts or the ira and 401(k) plan. i don't want to beat a dead horse. this is a subject i get a ton of questions about. should like my money in a roth ira? let's start with a roth ira which anyone can contribute to as long as they make less than $153,000 per year. aside from the earned income tax credit in all the temporary

covid stimulus, the roth ira may be the single greatest thing the government has done for low income families since the end of the war on poverty. i would make the limits the same as for 401(k). that will be a theme for the rest of the year. the industry doesn't seem to care because they make a lot more money off of 401(k) plans. there is no other reason i can find for what you could contribute three times as much money to a 401(k) is an ira. many people to put at least -- . how about this, $10,000 in the ira per year. even higher than the contribution limit. if you just started these accounts in 1975 and adjusted the guidelines for inflation. i am chanting $10,000 or bust. i'm your friend and will not stop until we get it. i told you about the regular ira and it lets you take pretax income and invested. in the games can compound year

after year. totally tax-free, until you decide to stop withdrawing money. the roth ira works differently. with that you make contributions using after-tax income. unlike a regular ira, money and a roth will not decrease the tax bill. once the money is in a roth ira, you will never pay taxes on it again. as long as cash remains in the account. you don't pay capital gains or dividend tax. when you withdraw, which you can do without penalty, you don't pay any income tax on the withdrawal. none. with the rock you pay now so you don't pay 30 or 40 years from now. there is one more positive. after five years you can withdraw that money. not the games but the amount you contributed. then he won't get hit with a penalty.

it is very different from a regular ira. against don't get taxed within the account. once you start to withdraw, every penny is taxed. is taxed in ordinary income. that means when you're trying to decide between a roth or a 401(k) or regular, you need to determine if it makes more sense to pay tax now or to wait and pay once you have retired with a regular account. in short, you're trying to figure out if you will be in a higher bracket if you retire alone. it is really a complicated question. it has a lot to do with the specifics. simply how old you are. i think you go with the roth. better to take that hit up front and allow the roth ira to compound tax-free. for those of you that don't have the time to pick your own

portfolio, the smartest thing is parked at retirement money in a low-cost incoming fund that mirrors the s&p 500. as you get older, you can add bonds. until you retire, stock should make up the lion share of the retirement investment. i know i've said it before but i will keep repeating it until they kicked me off the air because it is so necessary. how about a roth 401(k)? meaning you make contributions with after-tax income and then never pay taxes again, except because it is 401(k), it is a much higher contribution limit. the roth 401(k) doesn't have any kind of means testing. matter how much you are and how you can take advantage of the roth 401(k). as long as your employer gives you the option. all of it depends on what the future looks like. if you think the taxes are

headed much higher over the course of a lifetime, been a roth 401(k) where you pay now and nothing in the future is the way to go. even if you make a lot in the present. at the end of the day it is beyond our control and beyond our ability to predict. bottom line, the lower the present income and the lower the tax rate. a roth 401(k) or ira, lets you pay those rates now and never worry about taxes again. the less money you make, the more likely that a roth is for you. it is that simple. when you save for retirement, don't worry about what could go catastrophically wrong in the future. just worry about the best choices. mad money is back, after the break. the break. >> reporter:

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lately we heard about the crushing burden of student loans. whether the government and what they should or shouldn't do to make the burden go away. we live three years long moratorium on repayments during the pandemic which helped to supercharge the economy. is a graduate with no debt can be worth a lot more money than classmates who have outstanding balances. student debt is cheaper than credit card debt. you can't get rid of it in bankruptcy. for any of you whose our parents are thinking of becoming parents, let me tell you, there are very few things he can do for the kids future that are better than paying for

as much of the college education as you can afford. if i was to make that hierarchy of financial need, i would tell you is more important to save and invest for retirement. why prioritize over children? it is simple. if you don't have that, who do you think will support you? the kids? if you want grandchildren you will need a retirement fund otherwise your children will spend ages taking care of you instead. if you saved enough in a given year, then it is time to think about college. the best way to save is through what is known as a 529 plan. they vary by state but the general rules apply. there are two kinds of plans. first, some states leave the 529 is a hedge against tuition inflation. you can buy college credits at today's prices and then use them in the future. especially not in a world where

major politicians are talking about -- . i want to talk about that savings plan. generally speaking, it doesn't let you manage your own portfolio. you have to pick 20 mix of mutual funds like with many plans. i prefer you to have control of your asset. i will swallow this one flaw. you can only choose between funds, go for low-cost fund that mirrors the market. you could start that with your kids is the beneficiary. that is what i did. need you wait a couple of days. i traded big locks throughout the whole thing. not my finest hour.

here is how it works. the contributions are not tax- deductible. you're paying for it with after- tax income. once your money is in the plan, you don't pay any taxes on your game. they can compound tax-free, year after year. that is what i like so much. it is like a roth ira except for college. because of federal gift tax laws, you can contribute $17,000 per year if single or $34,000 per year is married and you file jointly. your kids grandparents can contribute to the same plan too. if you don't have the money, a grandparent can also start. sitting on a huge sum of money. one of the cool things, it is

contributions without incurring the gift tax. it is not hard. who writes checks to a seven- year-old. a single parent or grandparent could potentially invest $85,000 into a 529 plan from the start or if you are married and filing jointly, you can contribute $170,000. for the next five years, you won't be able to contribute without getting hit with a gift tax. want to get that into your kids 529 as early as possible. that is because the greatest of the plant is about the power of compounding. given that you don't pay taxes, if you consummate -- and contribute $85,000 out of the bat and invested in a low-cost index fund, the relook him is overtime, you will make an

average of roughly 8% per year. them by the time your newborn is eight in, you should have trip and your money. $85,000 turns into $340,000. that is enough for private college education and a decent chunk of law school. most people can't frontload a plan like this. if you can, it is the best strategy. for grandparents, this may sound grim but your 529 plan contributions will count toward estate tax. to borrow a line from the life of brian, always look on the right side of death. extract the last thing about saving for college and grad school, any money in the 529 plan that you don't use can be transferred to another relative. even first cousins. if you save all of this money and your kid decides not to go to college, you can just withdraw the money. although you will have to pay taxes on any of your games below the 10% penalty.

here's the bottom line, pay for education is not as important as providing for yourself and retirement. at least not financially. if you have children the nephew made enough retirement contributions, putting money in a 529 college savings plan should be the next item on your agenda. stick with cramer. ♪ ♪ the biggest ideas inspire new ones. 30 years ago, state street created an etf that inspired the world to invest differently. it still does. what can you do with spy? ♪ ♪

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my favorite part of the show was answering questions from you. than is here to help me answering questions. for you that are part of the investing club, jeff will not need an introduction. for those that are not members, you have to join. is a great job for all of my viewers. in some ways, more important, if you like this, be sure to join the club. what is interesting, he and i go at it every day. is there an objective way to determine intrinsic value. it is something that you and i

-- . i am more art and you are more science. i often think about can we do without it. how special is it. do i value the market cap is equal to the opportunity. >> there is more than one way to skin a cat. one way you could do it is look at the price to earnings multiple. then compare with things like revenue growth and gross margin and free cash flow. and stacked them against each other. that could be to determine if a stock is cheap or expensive. >> i look at companies and say that i want to emphasize.

than i have you bring back to earth, toward reminding me -- is skyhigh. next we have robert that asked, i don't want to sound like a pig. if i'm planning to hold a stock for long-term, why should they take profits when there's an excellent chance of -- . here's my. you can't become the company. when i look at you i really, which has the biggest pharmaceutical of all time. we could easily become a eli lilly fund. but we try to do we do not swing from one company. we have to do some trimming. >> it is trimming versus selling. >> if we learned anything, best companies in the world with

products and management. if you can avoid something just like that, it favors trimming, even if it is a great company. >> there is always that somewhere. am trying to find that for to f see you next time. >> right now on last call. he speaks and investors listen in. if it's friday, it's time for insider buys and big companies are making major moves. we will show them to you. times of changing leaves, football and government shutdowns? return to the office reckoning will businesses succeed with a aggressive post labor day sees? california utopia, the city fact