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TheStreet Open House

Jim Cramer's Best Plays in the Playbook: Bonds, Your First $10,000

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NEW YORK (TheStreet) -- Are you looking to become a better investor? Jim Cramer's new segment on his Mad Money show called "Cramer's Playbook" might be just what you're seeking. Today we look back at two recent episodes of the playbook.

These are excerpts from Cramer's 'Mad Money' Recap originally published on Jan. 11 and Feb. 6, 2014.

What About Investing In Bonds?

For the next installment of his "Cramer's Playbook" series on financial literacy, Cramer answered the question of what percentage of a retirement portfolio should be kept in bonds.

Traditional wisdom will tell you that bonds are safe, risk-free investments that everyone should own, while stocks, well, they're just too risky. But Cramer said this line of thinking is reckless because the goal of retirement investing is to build a nest egg, not protect it.

With the 30-year Treasury currently paying a scant 3.65% a year, Cramer said it would take 20 years to double your money, which is why your portfolio needs to take on more risk. Investing in a low-cost S&P 500 index fund, on the other hand, introduces a little more risk but would average an 8% annual return, doubling your money in just nine years.

Cramer said for those in their 30s, no more than 10% of your portfolios should be in bonds; in your 40s, no more than 20%; in your 50s, 30%; and in your 60s, 40% to 50% should be the maximum.

Where Do I Put My First $10,000?

For the next installment of his "Cramer's Playbook" series on financial literacy, Cramer answered the question of where younger investors should put their first $10,000 of investment.

For investors just getting started, Cramer said a Roth individual retirement account makes a lot of sense because it is better than a traditional IRA for younger people. Roth IRAs do have some caveats, however --  you can only invest up to $5,500 per year and only if you make less than $127,000 per year, if you're single.

As for where to invest, Cramer said ideally he advocates investors have a portfolio of five to 10 individual stocks. But he admitted that picking your own stocks does take time and is hard work, something that may not appeal to everyone.

For those without the will or inclination for stock picking, Cramer said low-fee index funds are an excellent choice. Many actively managed mutual funds struggle to beat the averages every year, and those funds typically have higher fees -- which makes index funds a logical choice for those just starting out.

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

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