absolutely the most important one, but still just one part of building real wealth. there are some people, call them the 1% if you will, who can make enough money from their ordinary day-to-day income to become truly rich. what a great thing. but for the vast majority of americans, that paycheck is simply not enough. you need to augment it, work with it. if you keep watching, i'm going to tell you how to do that, not just for the next year or two years but the rest of your life. now, usually i come in here and tell you what i think of the market, what themes are think are best, stocks that best fit those themes but the truth is before you even start investing in stocks, there are a lot of other things you have to do if you want the payoff from those investments to mean something lathe e later on in life when you most need the money. you may not want to hear this, but it's fruitless to think you can get rich in stocks if you haven't laid down a tune decontamination for building long-term wealth beforehand. what do i mean before that? simple, you can make a fortune in the market but if you're hemorrhaging money anywhere else, a healthy portfolio won't do much for you. at best it will keep you afloat when if you'd planned things better it might have let you become wealthy. there are three absolute necessities, three things you must take care of before you even consider owning a stock. i don't usually address these subjects normally, i assume enough taken care of but here on "mad money" sometimes i feel like i'm being remiss in not mentioning them more often. we don't financial literacy in high school in this country. very few colleges will teach you a thing about how to manage your finances, though you might learn a ton of stuff about the theoretical foundations of marxism, that doesn't mean i can't offer a personal finance primer "mad money" style, especially since i know from your requests, phone calls, e-mails and @jimcramer on twitter that you crave this education. you ask for it everyday so i'm done ignoring it, ends tonight. what are the three things you must do before you can own stocks, first, this will sound boring and you've heard it a million times, it sucks the fun out of everything but i need to say it and you need to hear it. you have to, have to, have to pay off that credit card debt. i like to be entertaining but i have to nag you on the subject. i'm not one of those zealots that believe credit cards should be cut up into pieces. i've seen them done like handbags, or that credit cards are evil and should be burned in effigy. but i acknowledge the facts and the facts are these. if you have credit card debt you are paying an extraordinarily high interest separarate debt t credit card company. you're taking rates that may make a lone shark -- that's right, you're paying a loan shark -- blanch. the late great tony soprano would give you better terms. but to be fair with the credit card industry they can't break your knees if you don't pay them back. [ rim shot ] but they will financially kneecap you with late fees that will destroy whatever you've built up from your paycheck or other investments. like many aspects of personal finance, i have a one time or another brushed up against the down side of credit cards. in between college and law school i owed a huge amount of money to various creditors, just enough to make it so i had very little money left to live on. initially because of rotten luck and a bad break i ended up living in my car. i still managed to put a few bucks away into a retirement account i created investing with peter lynch from the fidelity magellan fund. "one up on wall street" remains the seminal text for understanding the market that's ever been penned but once i get a permanent address and knew where i was going to live, even though i was already in hock to a bunch of companies i owed money to before i lived in my 1987 ford fairmont, the credit card issuing companies found me and i took a brvelg of them down. pretty much everyone who offered me the plastic. i figured you could pay the minimal and keep stringing everybody out credit issuers never seemed to mind. i remember i paid that minimum and gotten a offer for one more and i said what the heck, why not. but when i added up the minimum payments and charges i realized that amounted to my biggest expense after my rent. i wanted to default but feared the consequences. i restructured my non-credit card debt with a collection agency these guys will like a posse and their payment plan give me just enough breathing room to get by until i went back to law school where i got a scholarship with room and board. i got legal work from alan dirs wits and worked on the klaus von bulow trial. even though the hourly rate seemed huge, every penny went to those credit card companies. in the end after school i got luc lucky and landed a job in goldman sachs. i paid them off quickly, what a relief. in the end i couldn't stomach opening the mail not everyone will be as fortunate as i was. but i am realistic and know where of i speak where i say there's enough way you can make enough money to save in any meaningful way let me put it this way. even if you're a great investor, a one in a million trader, it won't matter slonks you're burden by credit card debt. if your credit isn't so hot, you might talk about 20%, 30%. if your stock portfolio wraps up at 20% annual return, that's a darn good year but if you have a big balance on your credit cards that all of your gains will be sucked down the drain. so this is a sin kwau nonof investing. if you go into credit card debt then stocks will be a hobby. stocks can't be the wealth generate magazine they should be all of it will be wiped out by credit card debt. i know i soundlike your parents but they're right. there are three things you need. the second is health insurance. you should not invest a penny in the market before you have health insurance. you might think the affordable care act makes this a non-issue but you have to either buy health care insurance or pay a fine and still have no health care insurance. penalties aren't big to start but they get bigger over time. there isn't any choice here. don't be a moron. even if you object to obamacare politically and plenty of people do, it's eid yotic to pay a fine and get nothing rather than pony up and at least get health insurance. plus there are subsidies to make the costs more bearable if you're on the lower end of the income spectrum. honestly, you shouldn't need legislation to make you get insurance, medical emergencies are the single biggest cause of bankruptcy in this country. i know how bad it is to live without insurance, i was homeless and had no health care plan and had to drive hours to get to a farm workers clinic to see a doctor and even then i couldn't get the care i needed. i know you think it can't happen to you and the younger demo in the audience can feel vulnerable and you don't want to be exposed to the financial risks of not owning health insurance. one illness, a couple hospital visits can crush the capital you spent building years away from the market. sure you can get coverage even if you have a pre-existing condition but it's a heck of a lot cheaper to buy insurance before you get sick. you'll need health care eventually at some pois, everybody does. last but not least, before you invest in stocks you need didn't insurance, the rationale for both health insurance and disability insurance is simple. without these two kinds you can get bipolwiped out. you'll have the use your money to pay hospital bills or support yourself while unemployed or injured because you didn't have health or disability insurance. in short you have to pay off your credit card debt and get health and disability insurance, the last two are offered with good prices by many employers in this country so you have no excuse for not getting them if you also think you can afford to own stocks. these are more than just items on a personal finance to do list, they are essential elements in your strategy for capital preservation. rib, we talk about capital appreciation, that's when you grow your investments using money to make more money but we always acknowledge capital preservation comes first because you need that to protect your money in the present if you want to grow in the the future. here's the bottom line, paying off your credit card debt and getting health and disability insurance are the three most important capital preservation, without them investing doesn't make sense. why bother. with heavy credit card debt and without health care and disability, building welt can i be futile. even if you are one of the best investors in the world. take care of these issues tomorrow and we can create the portfolio that makes the most sense for you. zaidy in connecticut. >> caller: hey, jim cramer. i love your show and appreciate you taking the time to call me back. i quit my job two years ago, 67 years old now and i have $400,000 in a 401(k) that i've been trading in small cap which i haven't done recently but s&p, i had good returns the last two years, now i don't know if i should roll it into an ira or -- >> do you like what you have in your 401(k)? >> we have a self-direct brokerage and i was in fidelities fbi, i did really well with that for a while. >> stick with it. you're in good shape. just stick with it. i like what you have. that's a good opportunity. let's go to mike in new york. >> mr. cramer, how are you doing? >> all right, how are you? >> doing fine. just had a question krj city pensions. i've been a retired police officer for two years. i've been in the city pension system for over 20. what is this difference between a 457 plan or a roth ira and what are the pros and cons between the two plans. >> i'll have to ask you to check with your people at your pension plan the 457 deferred plan i'm not sure how that works and i can't cuff something here. it's too important i don't feel comfortable offering advice on that particular situation. before you can think about nova scotiaing in stocks, pay off your credit card debt, get health and disability insurance then create a portfolio together. on "mad money" tonight, i want you to be diversified and the same applies for your 401(k). i'll show you how to balance your retirement plan. should you ever tinker with your contribution level? don't miss my take. the 401(k) isn't the only game in town. i'll tell you when it makes sense to add an iery to the mix. "mad money" will be right back. . th'shy i have the sparcash card from pital e. g making everdollar cou. with it, iarn unlimited 2% cashk on all of my puhasing. and that unlimited 2% ca backfrs thousands dollala each ye going ba into bess... which ds fuel to and that unlimited 2% ca backfrs my bottom line. 's in yourallet? ♪ w' dwning in info. where, in of ts, is the stuff that matters? the akes are so gh, your finances, your future. how do you solve t u don't. u paner with a firm that anto person,une 500,and,an on what matters to you tonight we're talking about a subject we don't spend enough time on in the business media -- long-term wealth building. if you're serious about getting rich and staying that way i recommend you must do two things -- go to amazon or your local bookstore, buy the entire jim cramer catalog. now that they have that crass shameless piece of self-promotion out of the way, the second thing you should do to prepare for retirement, fetch you're in your early 20s and just started working is you've got to start saving now. i didn't say save for retirement, i said prepare because just stuffing your money in the first national bank of sealy, great though that mare be, it might not be enough to prepare for retirement. you should taken a active hand in setting yourself up for retirement. getting your hands dirty, especially with the traditional vehicle for so many retirements, fixed income or bonds yielding next to nothing. with that minimum reward, not worth the risk. that's what i'm here to help you do. young people, don't turn off the tv, you have to do this, too. if there there's anyone who can make the process sound interesting, it's me. you need to learn how to do this sometime. wouldn't you rather learn from a guy who's been around for ages even though he is sometimes around in lululemon stink pants, jumped into trash cans to highlight waste management not to manage the sound effects to drive points home? before i get going i want to make you a promise. i promise to give you useful advice you can't just find on the internet because so many of these personal finance bromides have been repeated ad nauseam that it's not worth calling this stuffed a vice anymore. yes, you should save. but how? should you put money in an individual retirement account? i.r.a. let's think about that. yes. yes you should. that's not a bold insight, that's not advice, just a fact yet people make careers out of saying use your i.r.a., use your 401(k), cut up your credit cards, spout brilliant epiphanies like pay your bills on time, don't spend more money than you make. great pieces of advice everybody in america knows yet there are people who will still condescendingly tell you just those points and assume it's enough to help you get ahead. i say it's not. financial responsibility is just a jumping off point. diet and exercise, please. i'm the guy who tells you where to go from there because i didn't make a career out of giving people money advice. i made a career out of using money to make even more money and i came to this gig later in life. so how from the perspective of a money manage like me should you go about preparing for retirement? what useful advice can i give you beyond just that you should use your 401(k) plan if you have one and your i.r.a. which anyone can have because you don't pay taxes on the money you contribute or on the gains inside them, allowing for years after years of tax-free compounding. how about advice on what you should not do with your 401(k)? the conventional wisdom says you should put money in but it leaves you on your own at the beginning of a complex and highly confusing process so what should you not do with your 401(k) contributions? first and foremost, don't use much of your 401(k) money to buy stock in the company you work for. company stock is still the most popular 401(k) investment out there. more people put the retirement dough into the stock of their employer than any other investment. i cannot stress enough how misguided putting too much must be in the stock of your company is. it must be only one part of a much larger pie. let me put in the "mad money" terms, every wednesday on this show we play "am i diversified" you call in, tell me your top five holdings and i tell you if your portfolio is diversified, meaning you have all five eggs in separate baskets with no companies that are part of the same sector. when it comes to investing diversification as i tell you as "sane investing in an insane world" it's the only free lunch out there. regular viewers know if you expose too much of your portfolio to the same sector you are running an enormous risk. suppose you had all of your money in tech stocks before the dotcom collapse? many people did. i would have been wiped out. it sired an entire generation on investing for years. your entire portfolio was in higher yielding dividend stocks. this is a cohort that had been performing well for years because bond yields were so low and yields kept going lower, bond prices going up which meant investors who were looking for income had no choice but to buy stocks with notoriously big dividends. but then in the spring of 2013 we had an interest rate scare. interest rates began to rise violently. the return you could get from bonds increased dramatically and all these high-yielding stocks which were basically trading as bond alternatives got crushed because they had real interest rate competition from the bond market so if all of the portfolio or even one-third of it was made up of these high yielders you lost a lot of money even though the first half of 2013 was fabulous for the market as a whole. that's the danger ott not being diversified. we'll get more interest rate spikes, those of you in those kinds of stocks, your eel get hurt again. you have to diversify. now apply that logic to your 401(k). do you want to invest your retirement money in the same company paying your salary? that would mean you're putting your savings in the same basket as your paycheck what if you worked for enron or eastman kodak for more recent less unsavory example or any other company that goes under. you lose your job, you lose your retirement savings. it's lose-lose. you think it's conjecture. you know, i used to have a radio show called "real money" and i got a giant number of calls telling me to stop bashing enron. why? because the callers had a ton of stock in the company. i then came back and explained that perhaps they needed to diversify away from enron. each time i did it, i heard about how they got discounts or how such a great company was too terrific to sell or the fact is that it was down so much. they couldn't sell. then one day it was gone. but many people have made this argument before and the company stock is still the number one investment. why? you probably feel like you understand the company you work for and the exclueses for informsing in what you know. that excuse doesn't cover it. you have to cut back, just cut it back tomorrow. diversification comes before everything else when you're investing. whether it be your discretionary portfolio or especially investing for retirement in your 401(k) so never put more than one-fifth of your retirement money in the stock of the company you work for doubling down is okay no more than that. it always carries risk beyond being undiversified. stick with cramer if you want to know more about how to manage your retirement money so you can build lasting wealth for you and your family. there's much more "mad money" ahead. americans are living longer these days and, yes, that should change the way you prepare for retirement. i'll help you fill those golden years with green. sometimes your 401(k) company math just doesn't cut it. don't miss my take on when it makes sense to go above and beyond your normal contribution. plus i.r.a., 401(k), both i'm weighing in, stick with cramer. you don't buy your kid nephew the same gift as your mother-in-law and that logic applies to the stock market, too, the rules of ownership can differ depending on age and your risk tolerance. while it's easier to bless some high risk speck speculative stocks in your youth, older investors shouldn't expose themselves to the same level of uncertainty. there's always a bull market somewhere and i promise to find it joust for you on "mad money" weeknights at 6:00 eastern on cnbc. this car iavelover 200 les per ho. win, everllecond matters. both on the track anthousas of miles away. with the help at&t, red bull rang can share critical information ouery inch oe car fromirally anywhere. akesre getting warm. confirmed, daniel u ed to cor brakes. unrstood, brake bias back 2 ic. ging thethagility to hespeed & uncausno one knows & like 2 icat&t. if youe gog to wish, wishig at the lexus decembero remember svent get up to $2500 customer cash leselect 2016 d 2017 models for these terms. gseyour lexusear.ustomer cash everybody in this country wants to get rich quick -- except perhaps for hippy types who don't believe in currency and want to live off the grid. anyone who tells you he has a way to make obscene amounts of money overnight is peddling some scam or doing something very illegal, a la walter white's late lamented meth operation in "breaking bad." i love when bryan cranston came on "mad money" and said you didn't need selling, the blue meth sold itself. but ancient spoiler alert, that get rich quick sneak ended real bad. the most reliable way to make your money go as i explain in "get rich carefully" is to do it slowly and prudently which is why we're talking about long-term wealth building. here's a very important rule that applies to all forms of investing but it's especially critical when investing for retirement. i know retirement money is meant to be sacrosanct with little risk taken but it's possible in this era of very low interest rates that you can be too cautious, too prudent and too risk-adverse. when you're managing your money there's a point where your prudence can become like recklessness and this is something you particularly see with people who want to save for retirement. i like to say you invest for retirement, don't save, savings makes it sounds like you have to sock money away into something with low return, maybe a money market fund, a long-term bond fund, something i believe no one would invest in if they understood the risks of either. and somehow you feel you'll be fine. that, unfortunately, is not how it works. not these days, not this age. these there's a counterintuitive element going on here. most people feel like they shouldn't take on too much risk, that retirement savings are too important to jeopardize by investing them in stocks. i understand why you feel this way. stocks can go down, they're not like returning vacuum cleaners unlike bonds but if you shun stocks and cling to bonds because you believe there's less chance for down side, that's not being all that intelligent right now. i call it recklessness masked as prudence. investing none of your 401(k) or i.r.a. money in stocks is far more likely to jeopardize your retirement savings in the long run than investing everything in stocks would be. why? when you're investing for retirement, you're in a race against time. you need to generate enough money to support yourself for the rest of your life by the time you plan on retiring and if you are too risk averse, meaning if you load up on bonds in your 20s, 30s and 40s, avoiding stocks because of the risk -- and i see plenty of i.r.a. 401(k)s like this, you'll never generate enough money to retire comfortably. the money you have will be safe but that's all it will be. it's not enough to get a low single digit return, something below 4% because with that low rate you're barely going to outpace inflation. capital preservation should not and is not a financial suicide pact. you also have to factor in the need for capital appreciation. using your money to make more money. perhaps a lot more money. by the way, let's not forget bonds aren't always the epitome of safety, either. there are moments when owning bonds can be risky. in an environment where interest rates are rising by definition, bond prices are going to fall and the faster rates rise, the harder those bonds will fall, something that will truly be felt by anyone who puts money in a long-term bond fund which can lose money if rates shoot up as so many feel will happen if the federal reserve isn't careful and doesn't raise rates with alacrity. i'm not one of them, but many say that. so keeping all of your retirement money in bonds means you won't generate enough return to retire when you want to and beyond that there are times when bond prices have genuine down side risk. they can drop enough to risk two or three year's worth of coupon payments in very quick fashion as they did when interest rates skied in the second quarter of 2013 if you timed it wrong. what else falls under the category of recklessness masked as prudence? stable value funds. i know that name sounds reassuring, doesn't it? stable value. the truth is this is a type of fund that gives you a slightly better return than a money market fund and is slightly worse return than a high quality bond fund. although unlike bonds they have insurance wrappers that protection you from any fluctuations in value but if the return for nothing but bonds is too meager to build wealth in your retirement accounts, then a small return from stable funds is even worse. the definition of trying to be so prudent you become actually irresponsible. the goal of the show, my mission statement, is to help you use your money to make more money. even as i know that requires work and you can't be on autopilot as so many of you are. when you either in your 401(k) or i.r.a. or in your discretionary investing account put money into things like treasury accounts, you're taking the money off the table. you're saying i won't use this money to generate more wealth. i want to keep it safe. but you can't have it both ways. either cling to safety and when it's time to retire you don't have enough cash or you take risks in stocks when you're younger and go for the higher returns that will enable you to retire healthier and happier. believe me, while money can't buy happiness, being broke is a sure way to be miserable. i'm not saying there's no place for bonds in a retirement portfolio, there is. as you get closer to retirement you should have your cash cordoned off into something approximating a risk-free zone because you'll use the money shortly but stocks come first as an option to much later in life which is so different from the old days when pensions were bigger, life expectancy was shorter and interest rates weren't being slugged down and the european economy always bordering on recession makes their bonds unworthy sending more money here, creating absurd demand for bonds with low yields. even corporate bonds have become difficult to invest in as they offer yields that used to be chintzy for government bonds. those who bought the big corporate offerings ever, those long-term bond offerings from apple and verizon might do better owning the common stocks and reinvesting the dividends. 401(k) plans have pretty limited options. it bothers me but it's true. if you can't pick your own stocks, the best way is to find a cheap index fund that mimics the s&p 500 which is taken to be a good proxy for the market's high quality stocks the kind of stocks that have been proven to be the best asset class to invest in in over any 20-year period. as you get older you can and should take some of that stock money off the table and put in the high quality bond funds for safety but only some. my rule is you should keep 10% to 20% of your retirement portfolio in bonds when you're in your 30s, no reason to own bonds before you're you turn 30. from age 60 until you retire stick to 40% to 50% bonds. this may sound aggressive but it's the best way to generate the return you need to retire the way you want you want to and when you want to. once you retire you should still own stocks. especially higher yielding stocks that can generate more income with that that much risk. i think they should about a third of your portfolio at that point. i know that's aggressive but i have to give you what i think is right. this is very much counter to the conventional wisdom that says you should have more bonds in your retirement savings but the conventional wisdom was coined when people had shorter life spans. we're living longer these days and if you want to provide for yourself as you grow older you need the extra up side from stocks when you retire because that safe money in bonds will run out. look at it this way, not owning stocks once you're retired is a bet against your longevity. you want to make that bet? bottom line, now you have your first principles of retirement investing. stick with cramer and i'll give you more specific tips for using your i.r.a. and 401(k) to make even more money. sean in new york. sean? >> caller: thanks for taking my call. my uncle franky got me hooked on your show and i'm a big fan. >> that's terrific. >> caller: my question is about investing a roth i.r.a. i'm 25 and recently graduated from law school and over the past three years i've taken advantage of my pretty much non-existent tax rate and maxed out my roth i.r.a. from a summer job. so my question is i have the money invested in broad stock index funds but i want to know how i can invest more aggressively. >> you know what, sean? you've got to get into an aggressive mutual fund for a quarter of half of that money. someone is looking at aggressive growth. in the next ten years, you have a shot to make a lot of money from that fund. 10 years from now if we're having the same conversation -- which i hope we do -- you can pull back but this is your chance to risk that money because you have to rest of your life to make it back. dan in florida, please, dan. >> caller: jim, long time first time. >> yes. >> caller: jim, i would like to hear your thoughts on a buy and hold strategy regarding companies that have had consistent compounded annual growth of over 10% per year for many years. >> well, i mean, i always say to people okay, how can you buy and hold them if they have consistent growth if next year they're not consistent? i've seen this time and again, particularly with technology stocks. a company called digital equipment had that same -- exactly what you said, kept doing it and doing it then it disappears. wang, same thing. doing it, doing it, disappeared. these are all companies i remember that defined that what you just mentioned. and then one day they missed and then they missed and then they missed and then they missed. can't have that happen. going into your golden years? the best is yet to come. learn to make your money work for you. i'll give you advice along the way. more "mad money" ahead, taking things up a notch. i'll let you know when it's right to double down on what you put in your retirement plan. then the 401(k) gets the hype but there are other ways to make sure you don't have to work until your last breath. i'll lay out your options. plus your tweets just ahead. stick with cramer. >> what other questions do we have? i tell people you have to start with an index fund because i need you to be diversified. if you're looking to build the foundations of long-term prosperity -- and if you're watching the show, i assume that's important to you, unless you just like the sound effects -- the first step is to set yourself up for retirement. that's why we're focused on how to use the 401(k) plans and the individual retirement accounts, or i.r.a.s, i'll let you more about using the latter after the break. right now i want to share with you my favorite piece, personally, of 401(k) advice. this is not some abstract idea. it's a tip based on how i manage my own 401(k). unless you think i'm a clown and an utter stooge of the shirley or kemp variety -- i won't get on the floor to spin, though -- you know what i'm about to tell you is worth hearing. most people will take advantage of the 401(k) plans contribute on a monthly basis and that contribution is automatic, taken out of your paycheck so every month you end up plowing in one-twelfth of your total annual contribution. people will tell you to leave that alone and passively invest your money over time. i am not up with of them. why not? because there will be times when the market takes a hit, a big hit, a nasty hit and i think you want to capitalize on that in your 401(k). why would you contribute the same amount every single month when stock prices can differ radically from one month to the next would you want to invest the same amount of money when the market is nearing a top as bottom? no, absolutely not. here's how you can take advantage of a big decline in the market because when you're investing for retirement, when you have long time horizon, stock market pullbacks are opportunities to buy, not reasons to weep, moan and tear your hair out. it's simple, whenever you get a 10% decline in the s&p 500, double down in your contribution. that month you put in twice your normal 401(k) contribution. that's right, twice. meaning one-sixth of what you plan to invest over the course of the entire year instead of one-twelfth. you may want to do the same thing the next month, then beyond that you may want to wait. i do this. this is what i do. it may not sound like it would make a lot of difference the lo t long run but it does. if you embrace the one-twelfth solution doubling down wherever the market declines from 10% you will make more money than you would if you passively contributed the same amount every month month after month into your 401(k). just to make sure we're clear here, i'm talking about investing the money in a low cost s&p 500 index fund or if you're using an actively managed fund with a manager who has a long record of consistent outperformance. you probably can't find a mutual fund like that in your perform 401k offerings so it's best to stick with that. but that's what you're doubling down in your contribution to. will this make a huge difference over the course of four or five years? maybe. but over 40 or 50 years it could mean tens or hundreds of thousands of extra dollars because you took the time to observe what was happening in the market and adjust your 401(k) contributions accordingly. again, actively manage things, not taking that passive approach that no longer flies in the new role of investing. here's the bottom line, pay attention to the market so when you get a 10% decline you can double down and invest twice your normal 401(k) contribution that month to take advantage of the cheaper merchandise out there. when you have long time horizon, you can think of a meaningful decline in stocks as nothing more than a sale. no different than a sale at your local department store. that's the right way to manage your retirement portfolio. "mad money" is back after this. while we're on the subject of long-term wealth building, i need to tell you about the limits of what many people consider to be the holy grail of retirement savings -- your 401(k) plan. now, i've given you all the 401(k)s dos and don'ts and i'm the first person to admit it can be a vital part of setting yourself up for a cozy retirement or even a grandiose ostentatiously wealthy one. why not? but i'm not part of the crowd that says you should max out on your contributions every year. that would mean putting in $18,000 which is the limit on contributions for 2015. no, your 401(k) is important but it has its downsides, plenty of them. you'll hear people cite high management fees and administrative costs as a problem and they eat away at your retirement capital, no question about it. but for my money, the worst thing about most 401(k) plans is the lack of control over your money and lack of choice over what you can invest in. i believe the best way to invest, as you know, is to buy and diversify portfolio of individual stocks. do home work on each one of them so you know when it's time to buy more and when it's time to sell and when it's time to sell everything, which is very require, by the way. most 401(k) plans don't give you that option. you usually choose between no more than a couple dozen funds, some for stocks and for bonds and even though you can lobby your company's human resources department to add better offerings, most of what you have to choose from isn't that grand. i don't know if i would waste my time trying to change those things. that's okay. it's why we have the i.r.a., meaning individual retirement account not irish republican army. i.r.a. doesn't have the high management fees of a 401(k) plan and lets you invest your money the way you want to. making it the superior vehicle for your retirement investments. your i.r.a. has the same great tax-deferred status as a 401(k). but with many 401(k) plans your employer will match at least some percentage of your contributions up to a certain point. that's free money. you'd be a full not to take it. but there's usually a cap on how much the company you work for will contribute so here's my rule of thumb for retirement investing. contribute as much money in your 401(k) as needed to get the full company match and then stop right there. at that point, don't put another penny into your 401(k), at least not until you've maxed out your i.r.a. contributions. after you get the full match in your 401(k), put all the rest of the money you're saving for retirement into an individual retirement account. if you want to foe whether to use a regular i.r.a. or roth or the difference between them, may i suggest you a pick up a copy -- not at your local library -- of "stay mad for life." that's the personal finance book that i wrote that gives you much more detail on this stuff. for now, though, we're talking regular i.r.a., you pay no taxes on any gains inside the i.r.a. those profits are allowed to compound year after year tax free until you start withdrawing the money in retirement at which point your withdrawals get taxed as regular income. it's still sweet. now you can only pour $5,500 a year into an i.r.a. as of 2014 unless, like me, you're over 50. in case you can contribute -- in that case you can contribute $6,500 a year. you should max this out if you can afford to after you've milked your employer dry with your 401(k). if you do, that you should fund a terrific retirement. if you want to contribute more money you can put it back in your 401(k), however that's after you've maxed out your i.r.a. let me give you the bottom line here. 401(k) plans have a lot going for them but they're deeply flawed. that's why you should only contribute as much money to your 401(k) as it takes to get the full match, after that, your retirement savings should go into an individual retirement account which has much lower fees and flexibility. if your 401(k) has no employer match, start by contributing to your i.r.a. and keep going until you max it out at $5,500 a year or $6,500 if you're over 50. "mad money" is back after the break. fill a biorde d take on whatever comes nex o how american prescardand servic calp prepaou for growth at op.c. they pile up, we have to get to work. your tweets that you've been sending me @jimcramer #madtweets. our first tweet asks "how do you take advantage of the correlation among not between stocks, bonds, and money markets to steadily grow an i.r.a.?" this is very easy. depends on your age. if you're a younger person, i don't want to see any bonds. what are you going to do? compound at 3%? i want to see stock, stocks, stocks. as you get into your middle ages then you can load up in bonds. we need to make money with our money. we can't do it with the bond market. next. "i'm looking at dividend stocks. when's the best time to purchase and what evaluation do i review?" there's a terrific newsletter at who has worked with me for a decade who tells you which ones are safe and which aren't and he knows dividends better than me. "pay off car, house, or invest?" really important. pay off the car, house, let it run. your mortgage can be low. honestly you might get a better return from the good dividends stocks we talk about and get that mortgage money. that's a no brainer for me. the next tweet "what percentage should people save invest from their income a month?" this is one area where people can use advice. i talk about this all the time. my advice is you should look at what your discretionary money would be away from just eating, that's the money i want to see put away. de in other words, movies, that kind of thing, try it. i did it for two years and i cannot believe how much money i was able to save. up next we have a tweet "how many stocks is too few, too many to own?" we are professionals, we know how to do the analysis that means for you if you're an amateur home gamer, no more than 10. it's too hard. you don't have the time. next question "locked student loans less than 3%, want to invest in dividend stocks instead of paying them." you are brilliant. that is just what i want. take a look at some of the mass limited partnerships, those are very good. some of the higher yield and utilities are very good. and the iyr within there there are excellent real estate investment trusts. those are perfect. our next question. used a vice "how much tinkering with a retirement account is too much? are quarterly adjustment changes too much?" are quartly adjustments changes too much? i know a bench mark of too much changing around, and that's my fantasy, don't change 26 times a week. that makes no sense, you have to do the home work. if everything you bought is good, don't make changes, we only make changes when our thesis isn't panning out and circumstances have changed not because we want to make changes for the sake of making changes. next question "do you favor any particular financial advisors?" this is important. the most important advice you'll get from me. find someone else who has one and recommends that person. why? i have discovered that this industry, most people are too small for the big guys. i have been on fights representing people who have $100,000 and don't get any treatment at all of any sort of personal touch so find someone who has a good person and use that person. i know that sound like i'm punting but it's not. otherwise you won't get the personal touch that's so needed. all right? stick with cramer. >> hey, i'm cramer! remember during the holiday season it's okay to love your gifts but maybe not the stocks. there's nothing worse than discovering what you they this i is the next hot product, loading up on the stock only to discover it's old news. just because you think you've discovered the next big thing, don't mean you're the first one to the party. if you're too late, it won't make money. there's always a bull market somewhere and i promise to find it just for you weeknights at 6:00 p.m. eastern on cnbc. maers. isond both on thtrac and ousands ofiles away. wi the helof at, r bul racinghare critilinformation abr inesesre getting warm.allyanh nfirme diel u ne to ololour ake. undetood, brakbi bac2clicksgiv. what's ccal thinking like? atwh's t value of capita a baetball costs $. wh's team spir worth? (cers) wh'swhat's irttoorth? lk to your m? att justeah,bubuth thaer capiis to eate, morgan staey i like to say there's always a bull market somewhere and i promise to find it just for you right here on "mad money." i'm jim cramer and i'll see you next time. i have been workings moment right now. that's what i want to hear. tilman: for two small businesses, stuck in neutral, the time has come to either scale up or give up. if you can't grow this business with this good of a product i'm not gonna do business with you. a swimsuit designer finally ready for her day in the sun. y'all can tell the difference between this - and a typical american fit. - yeah. announcer: a drain maker, determined to grow his sales for the sake of his team. without them, i couldn't possibly do it by myself. if they earn an order from me, they'll go further than they ever imagined. if you run the rest of your business, as good as you've done this, we're gonna do some business. but if they fall short, they might as well go home. this doesn't get better real quick,

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