This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
See Cramer's multi-million dollar portfolio for FREE and get his new book Get Rich Carefully! Learn More

Cramer's 'Mad Money' Recap: Building Long-Term Wealth

Slow and Steady

Getting rich quick is always alluring, said Cramer, but in fact the best way to build wealth is not overnight, it's slowly and carefully over time. That's why accounts like IRAs and 401(k)s should always be your first line of offense. Their tax-deferred nature and employer contributions may seem small and insignificant now but over time they'll add up big.

Cramer said it's also possible to be too cautious, too prudent and too risk-adverse. You should invest for retirement, he continued, not save for it. Savings implies just socking money away in something with a low return. Unfortunately, that strategy rarely works.

When saving for retirement, many investors may think bonds are the way to go since they afford less risk. But loading up on bonds in your 20s, 30s and 40s because you fear risk will never allow you to generate enough money to live comfortably. It's not enough to rely on a 3.9% Treasury bond, because those vehicles rarely keep up with inflation, let alone allow you to get ahead of the curve, Cramer advised.

Adjust as Necessary

So investors have their credit cards paid off, they have health and disability insurance, they're contributing to their 401(k)s and they've decided to take on a little risk and invest in stocks rather than bonds. Now they'll get rich, right? Well, not quite.

Cramer said conventional wisdom will tell you to just passively have a percentage of your paycheck sent to your 401(k) every month. But if you think about it, that doesn't really make a lot of sense. After a big market rally, when stocks are expensive, ideally you'd want to invest less that month. Conversely, after a big market selloff, you'd ideally want to back up the truck and buy all you can.

Cramer said any time the S&P 500 falls by 10%, investors should be doubling down and buying twice what they normally would. Will this strategy make a big difference over four or five years? Probably not, he admitted. But over 40 or 50 years, this alone could mean tens or even hundreds of thousands of extra dollars in your account.

"That," Cramer said, "is the right way to manage your retirement portfolio."

Take Control

For as great as 401(k) accounts can be, however, Cramer said they do have plenty of downsides. First, many have high management fees and administration costs that eat away at your savings. But more important, they lack a choice in investment options and that means a big loss of control.

Investors ideally want a well-diversified portfolio of individual stocks, said Cramer, and 401(k)s just don't offer that level of granularity. Fortunately, IRAs do, which is why Cramer recommends only investing in a 401(k) plan to meet the employer's match, then putting as much as you're eligible for into an individual IRA, which you can control.

The limits on individual IRAs are $5,500 a year if you're under 50 and $6,500 a year if you're over 50, an investment that's definitely worth making.

To watch replays of Cramer's video segments, visit the Mad Money page on CNBC.

To sign up for Jim Cramer's free Booyah! newsletter with all of his latest articles and videos please click here.

-- Written by Scott Rutt in Washington, D.C.

To email Scott about this article, click here: Scott Rutt

Follow Scott on Twitter @ScottRutt or get updates on Facebook, ScottRuttDC

At the time of publication, Cramer's Action Alerts PLUS had no position in stocks mentioned.

Jim Cramer, host of the CNBC television program "Mad Money," is a Markets Commentator for TheStreet.com, Inc., and CNBC, and a director and co-founder of TheStreet.com. All opinions expressed by Mr. Cramer on "Mad Money" are his own and do not reflect the opinions of TheStreet.com or its affiliates, or CNBC, NBC Universal or their parent company or affiliates. Mr. Cramer's opinions are based upon information he considers to be reliable, but neither TheStreet.com, nor CNBC, nor either of their affiliates and/or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. Mr. Cramer's statements are based on his opinions at the time statements are made, and are subject to change without notice. No part of Mr. Cramer's compensation from CNBC or TheStreet.com is related to the specific opinions expressed by him on "Mad Money."

None of the information contained in "Mad Money" constitutes a recommendation by Mr. Cramer, TheStreet.com or CNBC that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. You must make your own independent decisions regarding any security, portfolio of securities, transaction, or investment strategy mentioned on the program. Mr. Cramer's past results are not necessarily indicative of future performance. Neither Mr. Cramer, nor TheStreet.com, nor CNBC guarantees any specific outcome or profit, and you should be aware of the real risk of loss in following any strategy or investments discussed on the program. The strategy or investments discussed may fluctuate in price or value and you may get back less than you invested. Before acting on any information contained in the program, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own financial or investment adviser.

Some of the stocks mentioned by Mr. Cramer on "Mad Money" are held in Mr. Cramer's Action Alerts PLUS Portfolio. When that is the case, appropriate disclosure is made on the program and in the "Mad Money" recap available on TheStreet.com. The Action Alerts PLUS Portfolio contains all of Mr. Cramer's personal investments in publicly-traded equity securities only, and does not include any mutual fund holdings or other institutionally managed assets, private equity investments, or his holdings in TheStreet.com, Inc. Since March 2005, the Action Alerts PLUS Portfolio has been held by a Trust, the realized profits from which have been pledged to charity. Mr. Cramer retains full investment discretion with respect to all securities contained in the Trust. Mr. Cramer is subject to certain trading restrictions, and must hold all securities in the Action Alerts PLUS Portfolio for at least one month, and is not permitted to buy or sell any security he has spoken about on television or on his radio program for five days following the broadcast.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
DOW 16,262.56 +89.32 0.55%
S&P 500 1,842.98 +12.37 0.68%
NASDAQ 4,034.1610 +11.4670 0.29%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs