Not just investing, but every aspect of your financial life. And sometimes that means we need to take a deep breath, step back from the daytoday nittygritty of the market and no cuss on the educational side of things what i call investing 101 honestly, if any university was ever crazy enough to give me tenure, i could teach an entire semesters worth of classes on just the basics. But, of course that, presupposes that any institution of Higher Education here in america would be interested in teaching how to manage your money. A topic thats a little quintinian for the ivory tower types that run most colleges, you can get a bachelors degree in economics without knowing how to balance a checkbook. Thats not going to change, but we can do our best here on mad money to help. So investing 101. Whats the first item on my sill syllabus of the class . We need to thank you about savings. If you dont save, you will spend the rest of your life to a slave to your paycheck or the hostage to the Social Security system. For throws in your twentsz, who knows if Social Security will be around by the time you need it. More importantly, i cant teach you how to invest your money if you dont have money to invest. Thats why its really crucial that you save and save consistently. Look, im not going to tell you all the reasons that make sense to tav i save money. You dont need one more person badgering about the obvious, whether its to buy a house or you can retire or more than Social Security. Which you will need more than. Trust me. For most of you, when you hit retirement, Social Security, its not going to be enough. Plus, Social Security will be altered or taken away by washington, which makes it inherently unreliable. It wasnt so long ago the president and congress were willing to change the way Social Security keeps up with inflation. Something that would have meant serious cuts in benefits for those of you expecting to collect them 20 to 30 years from now. These changes didnt actually happen. Nobody in washington can agree on anything, anyway. But if things ever get more amicable in the capital, kind of like a oneparty thing going, you should be prepared for them to tinker with your Social Security. I have to tell you, i dont think it will be in a good way. Thats all the nagging i will do today. Honestly, from my perspective, the best reason to save is not that i will insure you have to insist on cat food in your old age . No the real reason to save money, a reason is that for the vast majority of people in this country, you are never going to get rich from your paycheck alone. Look, thats just a fact. For everybody whos worried about income and equality or the growing lack of social mobility out there, there is not much you can do to fix our system of playing stage capitalism on your own, but there are still ways you could help yourself. Mainly, you can increase your wealth pretty dramatically by saving part of your paycheck and investing that money in stocks as long as you invest it wisely. Thats my reasoning. If you dont save or save enough, then you are at best a hostage to your paycheck and your boss and if you are living paycheck to paycheck, you dont have the prospect of quitting your job. Your 18 p only options action are to keep doing something that makes you miserable or go broke and possibly lose everything, including your home, which is even more miserable as i can tell you from my personal experience. Trust me the back seat of your car is a lousy place to live. So on confessions of a street addict, i dont need to go over it anymore. But you can see, i know where i speak. However, if you save and invest your money, yeartoyear, if you grow your assets and for those of you in the dark about how to do that, i suggest you pick up a copy of get rich carefully, then eventually you will have real independence. You wont be hostage to anybody. It may not be fair, but we live in a world where wealth is synonymous with freedom. Its pretty darn good reason to save 15 of your pay clek if you can afford to or at least 10 if you are really strapped for cash. Once you start saving money, though, you have to know where to put it. Thats an issue we dont spend a lot of time talking about on mad money. Lets say you are saving 15 of your income, where should you invest that cash in thats optimal. How much should go into a tax retirement account loik a 401k or regular brokerage account. These are the questions i get all the time. My rule of thumb here is to invest for retirement first. Because to best against retirement is to bet against your own longevity. For those of you who are decades away from retirement age, i recommend putting half to twothirds of your savings into retirement accounts like a 401k or individual retirement account. Remember, these are tax favored vehicles. Meaning you dont pay any taxes on your accounts or profits within the account. You only pay taxes once you decide to withdraw the money after you are retired, at which point you withdraw it as ordinary income. I told you about how to use these accounts before. So i will not belabor the point. Half or twothirds of your savings should go into retirement. The rest of your money goes into a mad money account. Thats a normal brokerage. I recommend a low commission. There are two reasons why you should have parallel accounts like this. The first simply is to rise 401k means your money gets all special tax savings. You can take advantage with money you intend to spend before retirement, unless you use a roth ira. In the case of a roth, your contributions are tax going in. Well you are allowed to withdraw those contributions early without penalty, you still get hit for a penalty for withdrawing any of your profits early. If you dont feel you have enough capital by keeping two separate accounts, then a roth ira is a good way to square that circle. Especially since the roth is more favorable to younger people with lower incomes than a regular ira. There is a second reason i recommend using two different portfolios, though. You are supposed to take fewer risks with your retirement money. Can you tike i take more risks with your discretionary mad money portfolio. When you are young, there is much less difference. If are you the age of 30 you can afford to take risks with all your money because as i tell you all the time, have you your whole life ahead of you to make back any income losses. Hallelujah heres the bottom line. Dont think of saving money as the responsible way to make sure you have a comfortable future. No. Think about savings as an investment for the stockmarket. Investors done correctly to free you from the shackles of your paycheck and maybe make you, especially rich. Thats why you should have a retirement portfolio to make sure you have enough money once you stop working. You should also have a discretionary portfolio where you can take more risks and use your gain to have some fun before you turn 65. Debra in california. Debra caller hi, jim, thanks, so much for the show. Love it of course, thank you so much. Caller my question is, i frequently hear you and other analysts say to buy a stock on a pullback. Right. Caller but nobody ever says how to determine hutch of a pullback we should be looking for. So how do i determine how far it has to pull back . Okay. This is a great question. I have an answer. I always say its a fiveday percent from the 52week high is where i would start buying. Thats what i have been doing for my charitable trust. I dont like to get started before then because i dont want to rick that the next move down will force my hand. Five day percent and atlanta little bit off room rather than two to 3 down. 5to8 is my rule. Alan in new york. Alan. Caller booyah, professor cramer. Thank you so much for that degree. How can i help you . Caller hi. I know that you always say that when you are ahead you should take some profits off the table. When you have profit on Core Holdings that still have big upside, you keep or sell on investing Something Else. My goal sense i started investing, my first trade in 1978 is to play with the houses money. Take your time scaling out of a core holding. You can tap it as a franchise player. But when you have a double, i need some money to come off him when you have another double you need money to come off t. Goal is to play with the houses money and never touch it again. Because you just cant lose. That itself the way it should be played. Trust me, thats how its done. Debbie in id hodaho. Keb by. Caller he, jim, we have been getting a financial presentation that usually includes a free consultation. While we have been successful at accumulating money in our 401ks over the years with the emphasis of somebody we trust. We have moved and we are considering a change. Soar with now getting close to 60yearsold and are looking for a different plan, one that includes income distribution, Social Security maximization and tax savings. So what should we look for in a financial or an ad advisor at this stage of our life . Okay. You have got to get invested in your community. A civic activity, a ymca, which i support. You know, some organization locally and then get some feedback. I demand that people have some sort of contact with friends who use these people. Because referrals are the only way to be sure. Not advertising. Not seminars. But referrals. Okay. A penny saved is a penny earned. Think about your savings as fuel for your investments. You dont have to be held hostage to your paycheck and mad money will be right back. Now, on mad tonight, how many is too many . Find out how many stocks you should own and ill show you how to master the art of diversification. Then whats the stock really worth . Ill show you how to figure it out. How much lesser cash you should carry around in your portfolio. Why dont you stick with cramer . Zplmplts while every business is unique, everyone is looking for ways to cut expenses. And thats where pg es Online BusinessEnergy Checkup tool can really help. You can use it to track your Actual Energy use. Find rebates that make equipment upgrades more affordable. Even develop a Customized Energy plan for your company. Think of it as a way to take more control over your operating costs. And yet another Energy Saving opportunity from pg e. Find new ways to save energy and money with pg es Business Energy checkup. [is the staying awake part. T challeng gun shot your day sleep train has your ticket to a better nights sleep. Because when brands compete, you save. Through sunday, during mattress price wars, save up to 400 on beautyrest and posturepedic. Get interestfree financing until 2018 on tempurpedic. Plus, helpful advice from the sleep experts. But mattress price wars ends sunday at sleep train. Sleep train your ticket to a better nights sleep. I kicked off the show by telling you you should save 15 of your paycheck, 18 and split it before a more conservative retirement portfolio using a 401k or ira and using a discretionary money portfolio that you can manage out of a regular brokerage account. Beyond dividing your savings into two streams. How do you get involved in the stockmarket . Where do you begin . My short answer. This will sound glib. Buy a copy of get rich quickly i wrote that book to teach you how to invest in this not so brave few world. How about the longer answer, though . Less emotional. For starters, i believe a diversified portfolio of five to ten individual stocks is the best way to go. Remember you can do the index. Now im talking about the other part. All right. Before you start picking stocks, you into ed to forget everything i ever heard about that classic piece of socalled investing wisdom and buy and hold. You dont buy and hold on mad money. Thats reckless. Its a great way to lose your shirt. Instead we practice buying and doing homework. That means if you pick individual stocks, you will read a companys sec filings for the annual report. I do love t. 10k most recent quarter the conference calls, you have to do all of that. The most important element of the home is going over the earnings reports and not just the earnings release. You actually do have to read the transcripts of these calls. Theyre so readily available. Theyre everywhere on the web. There is no better source than information on these calls. Now its incredibly easy to listen to them online. You have to research the companys sector. Try to physical out if there is a good, if its a good moment in the Business Cycle to own things in the particular industry you are looking at. Then compare the stock to its competitors to see if its valuation makes sense or Something Else is a more attractive buy in that exact same sector. If are you not willing to put in at least that much work, nope, i dont want you to do it. I want you to stay away from owning individual stocks. This is jim cramer saying it. Mr. Stock is telling you, i dont want you to touch stocks. The fact is, investsing like Everything Else in life takes effort few want to do a good job. But im not trying to guilt trip you into spending more time doing your homework. A know a lot of people that dont have the timer incriminalation to do the individual Stock Research i believe is so central. If you are one of those people that lacks the time or the interest, dont try to wing it. Ill give you a Good Alternative in a second. I have been meaning to diversify a portfolio, you need 10 million. Until you have that much saved up, there is not much point in going into individual stocks. So where should you invest your money if you dont have 10,000 to invest or dont have the time to machine a portfolio but lease five stocks, in that case, put your money in an index fund. Yes, im endorsing index funds. Mr. Stock is endorsing mr. Index. If you want a cheap index funds that mirror the s p 500. You will have the asset class over the long term. Thats demonstrative and empirical t. Whole thing is the index fund is the market. So few put your money in a fund that mirrors the s p 500, will you have the same benchmark performance the performance exactly like what the s p gives you minus what fee us you pay to the funds administrator. Picking your best stock is the best option. For those who cant commit to stock picking for whatever reason, keeping your money in an index fund, that is a perfectly reasonable responsible way to go. I happen to like the vanguard 500 index fund. Very little fees in that one. However, if you do have the time and inclination to own individual stock the first step is to build yourself a diversified portfolio that i mentioned earlier. Now, im always getting questions of what constitutes diversified portfolio and what you should put in it. Let me spell things out for you. Diversification is simple. People tend to forget about it. We play am i diversified every week here on the show. In a nut shell, you would have no more than 20 of your portfolio is in the same sector. Diversification is all important because if something happens that questions one particular group of stock, you dont want it to inviscerate your entire portfolio. I seen too many people put too many eggs in one basket. When it broke, they lost everything. 2009 with the banks, those juicy yields people couldnt resist. Dont repeat that mistake. If you are building a di firstified portfolio, you need a minimum of five stocks. On the other hand, my raw thumb is you dont want to own more than ten stocks, then you will have to do way too much homework to keep up with all them w. More than ten stocks, you will practically be owning your own mutual fund. That will be hard on anyone, even the desire of an illusion of a personal life. First, you might want a tech Company Riding the triple wave of social. And second maybe you own a Pipeline Company as a way to play the tremendous surge if domestic gas. Third, perhaps a health care name, either a biotech celgene and a Big Pharma Company with the risk, bristolmyers, fourth, why not a retail. Fifth, lets round out with an entertainment cap energy, retail, entertainment. Thats what a diversified portfolio looks like, if are you Getting Started as an individual investor. Remember to own individual stocks, you need to do homework on each. You have a state of di firstified. Get your money spread out among at least five sectors. There is much more mad money ahead. Including the many factors that determine a stocks price tag, the actual what you pay that dollar amount. I will help you understand what a holding is really worth then solving the cash ka fun drum. How much should you hold in your portfolio . Dont miss my take. Plus everyone should pay their taxes, but are you giving the government too much of your money . Ill help you keep whats yours. Stick with cramer. Jim cramer, you are one of my heroes. I look forward to your sew every week night. Thank you for helping beginning investors like me. When you talk about the markets, i believe are you spot on. Oh i love it. Thank you so much. Every night we watch you i have learned and earned. Why am i taking a step back tonight to focus on the basics of investing 101 . Because with very few exceptions nobody tries to teach this stuff. Nobody at all. You can get a graduate degree without reaching your bank statement. I got to tell you, its driving me nuts. And thats why im trying to teach, well, thats why i teach you how to handle your finances and the basics of investing the stuff we gloss over in our never ending quest to find you the next bull market. Obviously, thats what mad money is about. Sometimes we got to step back and do it right to get you grounded. So we talked about what . Setting something aside for retirement. We talked about home workd and diversification. Now, lets talk about something we dont talk about enough at all. Really, because its hard and sometimes boring, but im going to make it exciting for you. Lets talk valuation. When you are picking stocks to fill out your portfolio, how do you talk what is keep . Oh, that itself cheap stuff. Whoa, thats expensive stuff . How do you compare stocks on an apples to apples basis . As i told you over and over again, you never judge a stock by the average dollar price. Its meaningless, you judge it by the multiple or pe. Think about it, the stock is in a thousand dollars, is that necessarily what it is at 500 . No. Anyway, valuations is a concept i use all the time to show you how we value stocks. Tonight i want to spell it out in more detail. To understand it, you dont need to know any math. Elementary school arithmetic. Here we go. The price of the stock write this down thats called p divided by its earnings per share thats the e equals m. The price to earnings multiple many is the pe multiple. Oh, when i say the earnings, i mean you want to look at the earnings estimates for the next year. Valuing stocks is all about the future not the past. We use the future earnings estimates, thats what the Major Institution are looking at. So the multiple is the thing, not the share price. Okay. But what exactly makes for an attractive multiple . Ten tiles earnings 15, 20 . Heres the thing. This is not an absolute way to value stocks. Its relative. There is no price earnings that is always attractive. The reason we use the method to value stocks is simple. It gives us the actual applestoapples way to compare one stock with another. For example, lets say General Mills, okay, is trading at 16 times earnings while competitive Cereal Company kellogg is trading at 15 times earnings. Does that mean general myles mills is more expensive than kelloggs . No, not necessarily t. Truth is, the pricetoearnings multiple by itself doesnt give you nearly enough information to assess the stocks value t. Multiple tells you what investors are paying for a companys future earnings stream. It doesnt tell you why. Lets consider the case of salesforce. Com. The king of cloud computing. That sells for more than 75 times earnings. Does that mean per se that salesforce. Com is super expensive versus General Mills . It may seem like it in no, in reality the comparison doesnt make sense, General Mills is a consistent but slow growing emphasis consumer staple play. While salesforce. Com is a rapidly growing Cloud Based Software as a surface company. These two are in different links. Theyre also playing a different game. The reason for that is growth. Remember when i said the pricetoearnings multiple measures what an investor is able to pay for the future earnings stream, the future is the key word t. Company has a longterm growth there about 6. 5 meaning over the next five years earnings should increase annually. Investors simply arent going to pay a nose plead valuation for those earnings. Hence the 16 priced earnings multiple. It doesnt grow that fast. Sailsforce has a longterm rate of nearly 30 . That means three or four years down the road the Companies Earnings are much, much larger than they are right now. Which is why investors pay up. Thats why they get that price to earnings multiple, when you assess a stock, you always, always, have to consider that multiple versus the growth rate. Generally speaking, stocks with faster growth will have higher pricetoearnings multiple. Its not an exact science t. Growth rate is definitely the factor. Which brings me to a metric factor that underpins our show. Its whats known as the peck, p. E. G. Ratio. This underpins all of mad money. Its the pricetoearnings to growth rate. This is a way of relating the p. E. Multiple to the growth rate and its not complicated. You just divide the multiple. Write the price, weve been over that, by the longterm growth rate of the company. Were driven by peg rates on stocks when we make our judgments and comparisons. When it comes to the peg ratio, we can talk in absolute terms of what is a good number, what is a bad number . My rule of thumb is one i arrived on after three decades of trading and investing, i dont have to pay two times. Any stock with a peg ratio of more than two, i just say, no, im not going to touch it. Dont buy, dont buy so if a company has a 10 growth rate, its trading at more than 20 times earnings. Im generally inclined to say, doan dont buy, dont buy too expensive. Sometimes you have to suspend traditional analysis. For example, 2013 melt item stocks soared without any regard for the pricetoearnings multiples. Then the spring of 2014 they fell out of favor back slightly. Sometimes there are companies that look expensive on nearterm earnings, but are darn cheap based on what we call the out years. 2016, 2017. By this same token, i consider any stock trading less than the growth rate, a peg ratio of less than 1. I consider that stock to be cheap. Some are what we call value traps that will only get cheaper. When you see a high Quality Company selling less than one time its growth rate you might have a terrific longterm buy. For example, priceline, a Company People invarably say, wow, thats too expensive. Sometimes it sells 18 times earnings. If pricelines price scares you away, remember, divide everything by 10. Then it wont seem so frightening. Heres the bottom line. For those of you new to the game. We use the price to earnings multiple in relation to each other. Whenever you make an evaluation comparison, you always have to consider the growth rate, too. If you only take othing away frm this statement. You can only value stocks if relation to each other and the index overall. Herb in florida. Herb. Caller sunny florida booyah. Jim. Sweet. Wish i were there. Caller yes, listen, jim, i have become a little of a krirm h. Aholic since my retirement. Thank you. I raise cash preparing for a corrections and then went on a bit of a shopping spree. Okay. I messed up on one of your prime directives of trying to keep it under 10, to find myself with 45 positions. Wow. All of them are you know i go through them regularly looking for the weak sisters, i just cant find one. Okay. Heres what you have to do. Im not asking you to just randomly sell. What i want you to do is rate them on conviction. One is a buy. It means you want to buy more of. Two if it comes in, you want to buy. Three if it rallies you want to sell. Four sell right now and peel off the fours then peel off the threes. I dont think you should be able to manage more than 20 stock, frankly, sir. You cant. I can do 15 to 20 indepth. When we get over 30, we stretch ourselves. Dont be stretched. Fred in utah. Fred caller yes, i want to know what ebitda was and why its important . Zplts earnings before tacks and amortizization. It looks at when you have a company that spends a lot of money to buy certain things that and stuff has to be deappreciatated, its a trueer look at what the money coming in. Another way to look at it, take a look at cash at the beginning of the year. Look at cash at the end of the year. That is another way to see if the company you own is losing money or making money, which is why we use ebitda sometimes because you need a better depiction than we can get from straight earnings per share. Stock only in relation to each other and the broader indices, alwaysings consider the stocks growth rate along with it to factor in the price. Much more ahead. They say cash is king. But how much should you hold in your portfolio . Dont miss my take. Then uncle sam is very hungry. Ill help you make sure you are not feeding him too much of your hard earned money. Plus tweets, stick with cramer. Zplmplts daddy. Sfx dads voice i love you baby girl. Duracell quantum lasts longer in 99 of devices so you can always be there. Ive already told you all about the need to have a diversified portfolio with five stocks some want many more than that, thats difficult. There is something you should always have, that something is cash. Cash is the fuel that lets you buy stocks into weakness, how we like to buy them on mod main because you cant buy low if all your money is committed at higher levels. How much cash should you keep in your portfolio so you can pounce in the next market of weakness, you know they always come along. First of all, your best chance to prepare for the next selloff is when the averages ride high. The next way to do that, remember we sell straight on this show, not weakness. So before we get into the actual amount of cash you should have at the ready. You should always have some cash in your portfolio. In fact, you might say there are moments when skash your most important position. Too many people i talk to tend to be fully invested all the time. Some are requisite enough to borrow money to own stocks. Like you can limit them or something when they go bad. I got news for you, being fully invested is something you should almost never do. Having no cash moves all your flexible in the downturn, borrowing money to buy stocks, using margin. Who do you think you are to be that confident, to be that brazen, to be that foolish. Using margin is the height of arrogance. Its bound to get you in trouble. So dont do it. Even though i know many brokers encourage such borrowing, they can make a little extra money off you. Okay. So how much cash should you leave in your portfolio at any time . That varies. My charitable trust, which is a paid service as part of the street. Com, i like to keep my cash position above 5 of the portfolio pretty much all of the time. Anything below 5 i feel the trust might as well be running on empty. Yep, you should try to have that 5 so are you ready for the next big selloff that others arent expecting. It gives you enough money to figure out the opportunity. How do we figure out what is the right amount of cash . This is counterintuitive, which is why i decided to do a segment to explain it. You heard me right, when everything is roaring, when the average versus had an incredible run, when stocks are making a i killing. Thats the moment when you want to increase your portfolios cash position. Sell, sell, sell how does that make sense . Shouldnt you want more exposure to stocks when the market is on fire . Remember the reason you need cash in the first place. Its so you can be in a position to buy more stock the next time it gets a pullback. You need to have cash in your portfolio to go to take advantage of the pullbacks in the market. There will always be pullbacks. That means the best time to buy cash is when the mark is moving. You will end up selling stocks at lower prices perhaps the exact moment when you should be buying tell. After a big run thats taken the averages up to all time highs, it might make sense to err on the other side if you are concerned the rally could be on its last legs. You should always be thinking, that will be the case. You may feel it will cause to you miss out on the upside t. Point is the next time we catch a downdraft, you will be eight quickly put that cash to work, buy lower more attractive price, keep if mind, there is always another selloff. Whenever the next one hams, you dont want to be caught with your pants down. Finally, is there aceh moment when it makes sense to put your cash to work . There are times when you should pour all of your cash into stocks. Those times are rare, like the hanes bottoms, that was a moment. We dont get many of those moments, though. My rule of thumb is that you put your cash to work behalf a dramatic selloff a. Decline of 10 in the s p 500. For example, roughly 6 from late december 2013 to as low as february 2014, that would have been a terrific moment to move a big clunk of your cash position into stocks. That wasnt a 10 decline. You should have kept some cash back on the side lines, in case the market went lower. When i tell you to keep 5 at all times. Its there precisely so you can use it to take advantage of the next 10 decline in the averages 10 detine in your favorite stocks. I got to tell you, a lot of my favorite stocks have been down 10 . Its been the best time to buy them, not sell them. Why am i so emphatic . By truly twooep keeping it at the ready, i was able to triple the performance of the averages, after all fees for 14 years. I was able triple. Its not just wow, you can never beat it. Because i did. Living and breathing embody imt and it was cash that made we thing. Never underestimate keeping cash in your portfolio. You need it to quickly and carefully buy stocks into weakness. For those of you fully invested, use the markets next updraft by selling stocks into spring thats simply the kind of discipline you need to practice if you want to be a good investor. You know what else you can call it . Hmm. How about this . Buy low, sell high. Has that ever really gone out of style . Mad money is back after the break. At ally bank no branches equals great rates. Its a fact. Kind of like shopping hungry equals overshopping. under loud music this is the place. Sustainable tea tree eir boil and kale. Ade from you, my friend, recognize when a trend has reached critical mass. Yes, when others focus on one thing, you see whats coming next. You see opportunity. Thats what a type e does. And so it begins. With e trades investing insights center, you can spot trends before they become trendy. E trade. Opportunity is everywhere. At ally bank no branches equalsits a fact. Kind of like mute buttons equal danger. That sound good . Not being on this phone call sounds good. Its not muted. Was that you jason . It was geoffrey it was jason. It couldve been brenda. Tonight im trying to focus on the big picture involved in managing your own money. Im calling it investing 101. When dealing with financial planning, we have to deal with those things in life that are inevitable. Im talking about how to set up a living will too morbid even for me. Tax, if you believe some people on tv is arguably worse tan death. A lot of people like too wait until the end of the yearer until we get to that april 15th tax return deadline before they talk about tax planning. The truth is, tax planning is something you need to unand you understand year around. Why . Because of the difference how we tax longterm and shortterm Capital Gains. If you buy a took and sell it less than a year later, it accounts as shortterm capital gain. It can be as high as 39. 6 , thank you, mr. President for bringing that tough rate back. Boo and i mean that as sincerely as possible. However, if you hold on to a stock for over a year and sell it, suddenly it becomes a longterm capital gain in the eyes of the irs. Under the obama reyeem the longterm exam gain rate is 15 for most people. Although if you are in the higher tax brackets, that rate becomes 20 , much cheaper than the rate you must be paying. Ye yes, for those of you in the top three tax brackets, there is a 3. 8 surtax and your net Investment Income and modified income and the Capital Gains rate might be 23. 8 in many cases. Thats a heck of a lot lower than the Capital Gains rates. So heres the real issue when many of you look over your tacks and see how much more you are paying for shortterm money that you made less than a year, i know you will be kicking yourselves and saying how can i be so stupid . I held the darn thing for over aer 82, id be in tax heaven with those super longterm Capital Gains rates. That at problem. All else equal, i think its a bad idea to have tax plateing have too much of your portfolio. Imagine you owned those biotechs and Cloud Based Service software red hot in the second half of 2013, suppose you dont need stocks for eight months already and lets say you decided these gains are so huge, i dont want to have to pay the tax man that horrible shortterm gains rate. Instead if i hold them three months longer so that Holding Period is over a year, ill be in the clear. My tax bill and these holdings will be nearly cut in half. Thanks to the longterm Capital Gains rate. In other words, suppose you let tax planning drive your decisionmaking when it comes to biotechs over the first 24 hour months of 2013 remember these stocks were eviscerated during the spring of 2014 t. Gains, they evaporated almost overnight. You see what happened . If you held onto the high flying biotechs, just so you get the benefit of paying lower longterm cap gains rate, in that case, lets say you probably lost all your gain, now, im not saying you will give up your gains every time you hold on to a stock simply for tax reasons. I am saying you should never hold a stock that could have an iffy future, just so you can avoid paying the higher shortterm Capital Gains rate. Thats not because i have a problem with tax avoidance. Tax avoidance is both legal and terrific. Remember, were not talking about a tax evacation. Thats illegal. You own stocks because you believe theyre going higher. You dont keep owning them solely in order to flex around with your tax bill when you think there may be problems with the businesses underneath or are you worried theyve gotten overvalued you a you are getting greedy as was the case with 2014. Thats why ive had one simple rule. Its okay to pay taxes. You dont have to like it. You have to accept it. Whenever you make money the government will take its cuts. You shouldnt let these tax considerations drive your investment decisions. Its hard enough just to do your homework on the companies you own. You dont need to add another step to the process, how many more months do i need to hold this thing to get that 20 lower Capital Gains rate test, even though the business may be faltering . If you own a stock and you decide to sell it, there is no harm in waiting a couple more days to cross the threshold and cut your Capital Gains tax bill in half. Unless you are on the threshold, taxes shouldnt be a factor. Let me give you the bought tomcat line here. There is a lot can you do to minimize the damage uncle sam does to you on tax day. Take every deduction you can legally get away with, dont let the difference between short term and Capital Gains divert your strategy. When up invest in stocks, its okay to pay the tax man. More important, its a sin to give up your gains. Stick with cramer. We have to get the tweets you have been sending me, jim cramer, lets take a tweet who wants to know can school be back in session . Please explain Stock Options so a twoyearold can understand. We appreciate it. Thank you. This is not red 13 dit. I will tell you gentleman getting back to even i started to write a chapter meant to explain to people options action, it started 25 pages and expanded to 50. By the time i finished, it was 110 pages. Why . Because that r theyre that hard to understand. Which is why i rarely talk about them on this show. No such thing about easy learning about options action. Oh, heres kevin, i just used a copy of real money to splash a supply, thanks for the advice and help around theous you know its funny i remember reading your text and i smashed a spider with it. Anyway, whatever is useful. Hey, look, fine. I think great. I like fly swatters. You can get them at dollar tree. Okay. Under score high fiveman, he asks, whats your boise to mens song, jim bo . How about end of the road . Okay. How about not bad, right . I pulled that one right you of, okay. At gregory j. Dikes wants advice, dont need a lot of money, whats a good percent of retirement account to have in fixed income or bonding . As you get older, im going to allow you to have fixed income. The rates are so low i am recommending the bond market equivalent stocks. As long as we dont get the 30 year, i will stick with that. Then we will do bomb work. Not until then. Mike wants to know, why does the yen strengthen during times of market turmoil . The yen is a manipulated stock. Its currency. The government manipulates it. Who know what is the government is doing over there. All i can tell you is that country has not produced a strong return in the stockmarket. Everyone is thinking its about to i remember when that market was worth so much more than ours. Fortunately, charlie rose, short it and buy the dow. Probably the best call i ever made. I still dont like japan. I like the country, not the stocks. Stick with cramer. Thanks for watching this special show. I like to say there is always a bull market. Right here on mad money. Im jim cramer. See you next time. A milliondollar idea just takes imagination. A milliondollar invention takes a whole lot more. You need guidance. You need money. You need us. Im george zaidan. Im an m. I. T. Trained chemist with a passion for inventions. And im deanne bell. Im a mechanical engineer, and i can get almost anything built. Getting a concept from paper to prototype to market eats up so much time and money, countless ideas just never get made. Ive took money from my grandparents, my parents. But im not an engineer. Theres no way we can do this. Thats why were on a nationwide mission to rescue them. Got some speed off you go each week, well meet two inventors. I found your p