Listen to Jim Cramer’s personal guide through the confusing jungle of Wall Street investing, navigating through opportunities and pitfalls with one goal in mind - to help you make money.
Mad Money w/ Jim Cramer
Mad Money w/ Jim Cramer 7/1/24
(upbeat music) Join FinterAct, a peer-to-peer community of financial services professionals, and keep your finger on the pulse of the industry. FinterAct offers a digital hub to start conversations, connect with fresh perspectives, and problem solve with peers. This members-only community also provides access to virtual and in-person events, where you can chat tech stack, develop efficiencies, and learn new ways to propel your business forward. Apply at FinterAct.net. (upbeat music) Homes.com knows that when it comes to home shopping, it's never just about the house or condo, it's about the home. And what makes a home is more than just the house or property. It's the location and neighborhood. If you have kids, it's also schools, nearby parks and transportation options. That's why homes.com goes above and beyond to bring home shoppers the in-depth information they need to find the right home. And when I say in-depth, I am talking deep, each listing features comprehensive information about the neighborhood complete with a video guide. They also have details about local schools with test scores, state rankings and student to teacher ratio. They even have an agent directory with the sales history of each agent. So when it comes to finding a home, not just the house, this is everything you need to know, all in one place. Homes.com, we've done your homework. (upbeat music) - My mission is simple. To make you money. I'm here to level the playing field for all investors. There's always a more market somewhere. And I promise to help you find it. Man money starts now. (upbeat music) - Hey, I'm Kramer. Welcome to Man Money. Welcome to Kramer America. I'll be with my friends. I'm just trying to help you make some money. My job is not just to entertain, but to teach you. So call me at 1-800-743-CVC or tweet me at Jim Kramer. There is a gaping hole in the American education system. Although I hesitate even to call it a system. When you go to high school, they teach you chemistry. They teach you geometry, they teach you physics. You have English classes, history classes, foreign language classes. You can graduate from college speaking three languages with a deep understanding of quantum physics or ancient philosophy. (upbeat music) But you know the one thing they almost never teach you a middle school or a high school or say nothing in college? Financial literacy. And I'm not talking about economics here. You could be an econ major and still learn nothing about financial planning or retirement readiness, let alone investing. Money is just not talked about. Frankly, it's become the third rail of American education. You're 1,000 times more likely to read Marx's Das Kapital than to read anything about planning a budget or certainly picking stocks. And that's why I want a constant mission to teach you how to manage your money. Which is what we do every day in the CVC investing club with the child of trust, providing a constant source of examples. And when it comes to managing your money, nothing is more important than retirement. Sooner or later, you're gonna stop working. Hopefully sooner rather than later, unless you really love your job. So I'm betting most you, even if you don't own individual stocks, still have some money in a 401K plan. Now decades ago, corporate pensions started going the way of the dough dough and now the 401K is the main way that Americans save for retirement. They're offered by your employer and they're among the greatest tax deferred investment vehicles out there, along with the IRA. And I'm not talking about the Irish American, Irish and Public Environment. I'm not even talking about the inflation reduction for that matter. I mean the individual retirement cap. For those of you who are about to change the channel because the whole idea of saving from retirement puts you to sleep, hear me out, darn it. You need to know this stuff. Your future self will thank you for getting your retirement funds in order. And while you may think you know everything you need to know about these tax favorite accounts, the truth is there's a lot the so-called experts don't tell you or don't want you to know. For example, the conventional wisdom says that you absolutely must invest in your 401K. You'd have to be a fool not to contribute. Many experts will even advise you to max out of your 401K contributions every year if you get a fort to. Right now the maximum contributions over 20 grand with room for an additional seven grand if you're over 50. But it tends to raise rise gradually over time. Usually a little faster than inflation. Now in 2004 it was $13,000. By 2023 it was $22,500. Either way, serious jumping change even with these contributions coming from your pre-tax income. However, sometimes I think it'd be the wrong approach. I'm not gonna sing the praises of the noble 401K planner tell you it's the key to your financial salvation because 401K plans can be a real mixed bag. Sure they have a couple of really great features but they also have a lot of bad ones. And those problematic features will eat away at your returns. Sometimes some fees that are almost totally hidden from you. I do not like that. So let me lay out the good, the bad, and the ugly of 401K plans. Man, I'll tell you whether it makes sense for you to contribute more money to your own 401K. Maybe there's a better way for you to invest for retirement. First and good. The best thing about the 401K is that it's tax deferred. That's right, it's a tax deferred investment vehicle. In plain English, that means you pay no taxes on what you put in and then you never pay a penny if capital gains taxes on the profits you make within your 401K, which allows your gains to compound year after year, decade after decade, totally tax-free until you decide to start making withdrawals. Regular viewers know that I am a huge believer in the power of compounding. Some people call it the eighth one in the world. Suppose you're 30 years old and you start investing $5,000 in your 401K. If you choose your investments wisely, you should be able to generate an average return of say 7% per year, at least historically, and that's being conservative. So at that pace over the course of the next 30 years, you'll be contributing $150,000, that's pre-tax income to your 401K plan. Because that money's able to compound year after year without any capital gains taxes. By the time you're 60, those $150,000 of contributions should be worth over $511,000. Without the tax favors status, you know what, that number would be roughly $110,000 lower. What a huge break! You only ever pay taxes in your 401K money once when you decide to withdraw it. At that point, your withdrawals are taxes who are nerdy and come in. Since you're likely to be retired by then, most of you will end up paying a lower rate than what you get hit with if you got taxed on that money while you're still in the workforce. That's one huge reason to like the 401K. The other one, many employers will actually match or partially match your 401K contributions. For every dollar you invest in your 401K plan, you're probably might say throw in 50 cents up to a certain point. That's free money for you. It's also one tax. So if your employer even partially matches your contributions, you should absolutely take advantage of it by putting money in your 401K. I'm not saying take the money and run, but definitely take the money. Of course, your 401K doesn't have any kind of employer match. Then it's actually a much less compelling option because as I said before, 401K plans can have a lot of problems. Without the match, sometimes you're better off saving for retirement via an individual retirement account or IRA just the same exact tax favored status as a 401K. Now you can only contribute 6,500 year to your IRA or 7,500 if you're over 50. That's an outrageously low amount. IRA's rolled out in 1975 and while they've raised the contribution limit since then, the increase has not kept place within face inflation. If it had, the limit would be more than $8,500. Now I want a person to go to $10,000 and I am going to make it my mission to fight for you to get that. Still, there are ways to better yourself. When you change jobs, you can roll over the money in your 401K into an IRA and that's exactly what you should do every time you switch employers or find yourself out of work. What makes an IRA the better option? First, they're the fees. When you invest in a mutual fund within a 401K, you have to pay the mutual funds fees. But your 401K administrator, the company your employer hires to run these plans will also charge you its own fees. On average, they take more than 2%. I find that extortionate. [CHEERING] Most actively managed mutual funds charge less than 2%. And they're actively managing your money. If you ever looked at your statement and wondered why the heck your 401K holdings aren't increasing in value like they should be, believe me, these fees are probably the reason. Second, 401K plans vary very widely from company to company. Now some of them give you the terrific range of choices and even let you pick individual stocks. But others are more limited. Only give you the choice of a couple dozen different mutual funds. So for those of you who can't pick your own stocks and your 401K, my number one rule is that before you contribute money to your 401K plan, you have to make sure it gives you the option to put your cash into something that's actually worth investing in. I spend so much time teaching this and now how to pick stocks in the CBC investing club. Because I believe it works. You should be skeptical of a retirement plan that doesn't give you that option to buy individual stocks. If you can't pick your own stocks in a 401K, then you want a nice low expense index fund, probably win the MIMICS CSP 500. However, if your 401K doesn't even want for that, or it charges exorbitant fees, then just go with a self-directed IRA from a full service discount program. Like a fidelity of moral energy. Say you have control over your money. The bottom line of retirement investing, if the company you work for matches your 401K contributions up to a certain point, take them for all they're worth. But other than that, an IRA is the superior way to go. Especially if your 401K plan doesn't give you any good investment options. Let's take calls. Let's go to Ian and Illinois Ian. Jimmy Chill, how you doing, my friend? Very strong. How about you, Ian? Oh, I'm glad to hear it. I'm doing well. Thank you. Yeah, good. My goal is to get out of my 9 to 5 as soon as possible and retire. And I'm wondering how younger investors should think about the balance between growth stocks versus dividend stocks. All right, this is a great question. I believe you should not that have been against yourself. A younger person should be almost entirely in stocks. Now, I have been on the extreme on this, but I tell you, over the course of the last 40 years that I've been teaching, that's been the right way to go. So let's forget about the bonds until you get to at least the mid '50s and then start adding them slowly. You're a stock guy. You've got to don't want to bet against your life. Let's go to Michelle in New Hampshire, Michelle. Hey, Jim. I could use your advice. Of course. My portfolio was doing fine before and at least then. We're at the interest rate hike and now it's almost all red. And I just need to tip some how to manage the investments in the down market. OK. What we want to do is we want to say that we're going to ride through down markets. And what we do is we put cash away, regardless. We are not going to look at the day to day, month to month, or if it comes to retirement, even year to year. Yes, we want to have the right stocks, but we're not going to stop contributing. Because historically, the rain does go away. And if you only invest when it's good, you're going to end up with not good prices. Carl Washington, Carl. Hey, Jim. Thanks for having me on. Of course. My question is, for the novice investor, what tools and methods would you recommend? I mean, obviously besides the obvious PE ratio, I mean, how do I evaluate companies for a good investment? All right. Well, what we do with the Investing Club-- and I know you can say I'm talking my book, it's really about exactly that. We show you what the many different ways are to evaluate stocks. And also to pick the ones that are most suitable for you, we can't do that. That's up to you. But we value them on price journeys. We have value on book. We value them on future earnings. And we also kind of overall value them against other stocks in their same peer group and in the market in general. OK. If the company you work for matches your 401k contributions up to a certain point, take them for all the work. But other than that, an IRA is this peer way to go, especially if your 401k plan doesn't give you any good investment options. Oh, mate, tonight, schools and sessions, great market, tonight's lesson, financial literacy. I'm taking through all my top tips to help develop a strong financial foundation. You're not going to want to miss this one. So stay with me. Great. Don't miss a second of mad money. Follow @chimcramer on X. Have a question? Tweet Kramer, #madmentions. Send Jim an email to madmoney@cnbc.com or give us a call at 1-800-743-cnbc. Miss something, head to madmoney.cnbc.com. Join FinterAct, a peer-to-peer community of financial services professionals, and keep your finger on the pulse of the industry. FinterAct offers a digital hub to start conversations, connect with fresh perspectives, and problem solve with peers. This member's only community also provides access to virtual and in-person events, where you can chat tech stack, develop efficiencies, and learn new ways to propel your business forward. Apply at FinterAct.net. When you're hiring, the best way to search for a candidate isn't to search at all. Don't search, match. With Indeed, Indeed is your matching and hiring platform with over 350 million global monthly visitors according to Indeed data, and a matching engine that helps you find quality candidates fast. Use Indeed for scheduling, screening, and messaging to connect with candidates faster. Plus, 93% of employers agree Indeed delivers the highest quality matches compared to other job sites according to a recent Indeed survey. Leveraging over 140 million qualifications and preferences every day, Indeed's matching engine is constantly learning from your preferences. Join more than three and a half million businesses worldwide that use Indeed. listeners of this show will get a $75 sponsor job credit to get your jobs more visibility at indeed.com/madmoney. Just go to indeed.com/madmoney right now and support this show by saying you heard about Indeed on this podcast, indeed.com/madmoney. Terms and conditions apply. Need to hire? You need Indeed. Support for this program is provided by Chevron. The anchor offshore platform is utilizing breakthrough technology to enable us to produce oil and natural gas in the U.S. Gulf of Mexico at pressures up to 20,000 PSI, a new industry benchmark. Anchor is part of Chevron's plan to produce 300,000 net barrels of oil equivalent per day by 2026 in the U.S. Gulf of Mexico. Home to some of our lowest carbon intensity producing operations. That's energy and progress. Visit chevron.com/anchor. (upbeat music) - If everyone in this country lost their minds and decided to turn America into Kramer, you better believe I would make some changes. So what would the 18th premiere of Jim Kramer look like? And for those of you who didn't get that reference, Google is your best friend. Because this is a show about money, let's take to the more mainstream elements of the Kramer American regime. For starters, it drives me nuts that we don't really teach our young people how to handle their money. Would it be so crazy if you hadn't taken a class on personal finance where you can graduate from high school? I need to be mandatory. Like those awkward health classes where they show you how to dissect a frog, come on. So can I just take a moment to speak some words that we all believe but very rarely get the same polite conversation? Look, money's important. It's really important. And caring about the state of your finances does not make you seem like some sort of superficial bourgeois monster. Say you got a lousy credit score and you want to get married. Congratulations. You've just inflicted your horrible credit on your new spouse. Now, neither you nor your partner will be able to qualify for a loan to buy a car or a home or perhaps even just get a darn credit card. These things matter in life. They say money can't buy happiness. I've always found that piece of cliched conventional wisdom to be dubious at best. Because hey, listen, being broke is a major buzzkill. As I know firsthand from the time I spent living in my '78 Ford Fairmont six months, California, I sure wish I hadn't expert to guide me through all this stuff way back then. Although I still put money away for retirement when I lived in my car, took it on my homeowner's budget. So let me answer one of the most important questions out there. What the heck should young people do with their money? First, foremost and always, you need to invest. That's the only way you're going to be able to achieve financial freedom. And by freedom, I mean living a life where you're not totally dependent on the next paycheck. To teach you how to do this is one of the reasons I actually put so much time in creative, the CMC Investing Club. I'm always thrilled when I see members of the younger demographic who are taking an active hand and managing their own money. To many people start saving and investing too late and making their lives a lot more difficult than they need to be as they get older. But I also know many young people feel that they have all the time in the world. And many more start investing before they're really, yeah, they're truly ready when they are, in fact, better things for them than to do with their money. And that's why I have three lessons and a caveat for all of those who are recently out of college, you. Listen, let's start with a caveat. Before you can start investing, you need to pay off the Thorne Credit Card. I mean, this is especially true for younger people because banks have gotten really aggressive by offering credit to college students. No matter how much money you rack up in the stock market, if you're carrying a balance to your credit cards, then it's going to eat in your returners. In the long term, the interest in those credit cards will probably be greater than the profits you can make from investing, at least on a percentage basis. So just pay your credit card balance in full, I don't take it a little each month, but you full each month. Automated with your credit card company if you're worried that you'll be tempted not to. That's what I did. See, when I got out of law school, I had maxed down on half a dozen credit cards. I took a job at Goldman Sachs, the firm everyone wanted to work at, and I made good money right out of the chute, but not enough to pay all that interest and be able to afford the biggest boom box in the world, which is of course my first priority. So I paid down the debt, pronto, and got my dream box a few months later. I'll never forget how proud I was with that box of my shoulder swinging in the breeze as I worked my way from 46 feet to my studio. 72nd. The point is credit card debt is owners, even if you're hitting it out of the park with your paycheck as I was. They are the house, they win, you lose. Now let's get to my few lessons for young investors. First, this advice is really for everyone out there, regardless of age or education level, but it's especially applies to fresh college grads. You need to save money. I recognize that not everyone has an inherent predisposition to save. We can't open natural cheapskates, and nobody likes being nagged about this stuff, so I'm sorry. However, the stock market is a great way to trick yourself into saving a part of your paycheck. You might otherwise go spend. Investing in stocks can be fun to take my, let's say if you're enjoying the club, you'll get this. Whereas leaving money in a savings account or certificate or deposit feels totally joyless for many people, even when they're giving you decent interest. Plus, if you invest your savings in the market, it'll be a lot easier to resist the temptation to spend that money on things you don't need, because you'll have to sell your favorite stocks to get your cash back. It's a great way to keep your money in and not out, being spent in a way that I don't think is gonna ever help. Second lesson for young investors, this is a much more targeted piece of advice. While you're still young, you can afford to take a lot more risk than say a great beard like myself. When you're in your 20s, you can get away with more reckless strategies, like owning more speculative single digit stocks, where the potential's upside's huge, but so's the potential downside, or you can play with the options. I'm fine with that. Why is that? Well, it's not because young people are naturally better speculators, uh-uh. It's simply because when you make a mistake with your money in your 20s, you have the whole rest of your life to fix it. Losing money is less of a problem when you've got 40 odd years in the workforce to earn it back than when you say, like, you're me, older investors do need to be more cautious. The closer you get to retirement, the more conservative your investing strategy must be. Yay, you gotta have some bonds. We're higher yielding stocks, utilities. Fewer speculative stocks trading the single digits, but if you're in your 20s, you should invest like a young person, not a good old person. I get too many calls from people saying, "Oh, I'm 40% bonds because I'm 22. "Are you kidding me? "You shouldn't earn any bonds." So young people all want you to take this advice to heart, especially as a respect that the recent college grads most likely to invest in the market, are also the ones who are the most responsible, the most prudent about their money. And perbs is great when you're putting together a budget to live within your means, we're deciding how much your paycheck to save each month, but for young investors being too prudent is actually reckless. 20-somethings live a little, at least in your stock portfolios, take some risks, play around with some speculative companies. Maybe buy some tiny biotech companies with a lot of potential. Even if they blow up when you can go to zero, you've got the whole rest of your life to earn that money back. Don't forget stocks do stop at zero, one of the greatest things about them. Oh, and that endless regard that you can't save until you pay off your student loans, please. Have you looked at how low that interest rate is versus say credit card debt? I chose to invest my money when I got out of law school after paying my credit card debt. I still invested, knowing that I could beat the student loan bogey, didn't pay that off in a hurry. So, pay some a little off, but please, don't be hurried up about it. I'd rather have you invest now and pay later. Plus, the Democrats are gonna keep pushing various forms of student loan forgiveness whenever they're in power. Meaning if you drag things out, you might have paid less. Final lesson for young investors like I said before the break, it's never too early to start investing for retirement. Use your 401(k) if your employer will match part of your contributions as I told you earlier. And especially put some money into a raw thyroid, which is ideal for younger investors. And that I'm gonna explain to you later. Here's the bottom line. For young people just out of college, investing is a great way to trick yourself into saving money. You might otherwise spend beyond that. Remember, when you're young, you can afford to take a lot more risk with your portfolio, and it's never too soon to start contributing to your 401(k) or IRA, especially an IRA that's a Roth. That money's back into it. Join Finter Act, a peer-to-peer community of financial services professionals, and keep your finger on the pulse of the industry. Finter Act offers a digital hub to start conversations, connect with fresh perspectives, and problem-solve with peers. This member's only community also provides access to virtual and in-person events, where you can chat tech stack, develop efficiencies, and learn new ways to propel your business forward. Apply at Finteract.net. At EverNorth Health Services, we believe costs shouldn't get in the way of life-changing care, and we're doing everything in our power to make it possible. Behavioral health solutions that also keep your projections at their best, it's possible. Pharmacy benefits that benefit your bottom line? It's possible. Complex specialty care that cares about your ROI. It's possible, because we're already doing it, all while saving businesses billions. That's wonder made possible. Learn more at EverNorth.com/wonder. (upbeat music) We live in a world where you have more choices about better investment money than ever before. A virtual infinity of ETFs, mutual funds, you name it. But more choices isn't always better. Sometimes having more options makes it impossible to decide which ones are right and which ones are wrong. And you've never had more options when it comes to picking exchange traded funds and mutual funds than you do right now. They're everywhere. At this point, there are so many different kinds of ETFs that it can make your head spin. The companies that run these funds, they want your money. And one of the biggest mistakes you can make as an individual investor is to give it to them with a few significant exceptions. Unfortunately, this is also one of the most common money mistakes out there. In fact, most people in this country simply equate investing with putting their money into mutual funds. Some 80 million people are basically half the households in America have exposure to mutual funds. Many of you don't have a choice. A lot of 401(k) plans to let you pick individual stocks. They just give you a menu of mutual funds to choose from, which is a major reason why I generally prefer IRAs. I believe in individual stock picking, which is why I spend so much time teaching you how to do it, both on this show and of course in the CMC investing club. We're walking through the whole process in extreme detail every day. What exactly is so bad about millions of mutual funds? Why am I really against them? Simple. If you're investing in mutual funds, you're most likely getting a bad deal. Now, I don't want to paint with two-parter brushes. There are some worthwhile mutual funds and I'll tell you how to find them in a minute. But first, you need to understand the problem with the mutual fund business model that no one talks about. My main beef here is with actively managed mutual funds. Mutual funds where there are people deciding which securities to buy or sell. Unlike hedge funds, mutual fund managers don't get paid for delivering performance. They collect fees from their investors, people like you. And the amount of money they make depends entirely on the size of their assets under management, which means their biggest incentive is not necessarily to deliver good performance. Now, what they're really being good at and what they get paid for is the fund rates. And that's part of the reason why in study, in study, in study, year after year after year, it's been shown that the vast majority of actively managed mutual fund managers underperformed their benchmarks. In other words, if you invest in an actually managed fund for large cap US stocks, then its performance will probably fall short of the S&P 500. To make matters worse, despite consistently underperforming the market, actively managed mutual funds still have some of the highest fees in the business. So even if your fund does manage to be in its benchmark, the odds are good that any app performance will be eaten up by big management fees. And you'll end up with an investment that makes you less money than a cheap index fund that mirrors the S&P 500. That's some industry. That's from business, much more sinkers swim. At my family compound at 24% annually after all fees versus 8% for the S&P over the same period. Yeah, I find it every second about those fees and even chose not to take them during a year where I was only up a couple percent versus a strong performance for the averages. Yes, I was that ashamed. Did a mutual fund manager ever do that for you? You can read all about it in Confessions with Street Act. My tell all, let's say my tell too much autobiography. Now here's the part where I say not all actually managed mutual funds are bad. Some of them have fabulous managers who consistently deliver terrific results. But even here there's a major problem. When a mutual fund delivers great results for a long period of time, if the manager's a decent person, they'll stop accepting new investments. Because once they get too big, it's impossible to generate the same kind of gains. So a lot of these high quality funds are out there but they don't take new money. And if the managers are not so great person, they'll keep taking more and more money until the performance starts to suffer hurting you. When the late great John Bogle, he's the father of the index fund, asked me how I could beat the averages so consistently at my hedge fund. I said that I limited my investors. I made it like a club where you had to be nominated to get in. That meant I was never overwhelmed with new money. Something that often leads to bad investment decisions. Bogle praised me. I have to admit I did love that. And said that if everyone did that, they'd have much better records too. And maybe that was the real secret to my hedge fund's multi-year out performance. By the way, if you want to know the other secrets to that success, again, that's what we teach at the investing club. But back to actively managed mutual funds. For the most part, they're not worth it. The fees are too high. And the evidence that the bulk of them underperform is just too staggering. Regular viewers know that I think your best strategy is to pair a low fee index fund with the portfolio of individual stocks that you picked yourself. That's what I talk about night after night and preach endless city club members. But for those of you who don't have the time to do research individual companies or if your 401K plans just want you to do it, let me tell you the smart way to invest in mutual funds. I do you want a cheap low cost index fund that mirrors the market as a whole. One that mimics the standard and pours 500. Index funds have ultra low fees and with an S&P index fund, you've got to be able to let you participate in the strength of the market without having to spend the time picking individual stocks. Remember, the whole point of putting your money in a mutual fund is to save you the time and effort required to manage your own portfolio of stocks. That's why I think it's insane when people start owning multiple mutual funds. By its very nature, a fund should be universal fund. Now, I know there are lots of sector-based mutual funds and ETS out there, but there's really no reason for home gamers like you to have any exposure to those. If you're going to take the time to try to play individual sectors, that time would be much better spent picking individual stocks. As for ETS, in most cases, these vehicles are for trading, not investing. I might have favored trading. Many ETS rebalance every day and that can take a real toll on any kind of long-term performance. You can lose a lot of money even if you're right. Of course, there are plenty of exceptions here too, like the GLD, which I like the ETF that's a simple way to play gold. And I like the ETS, of course, that mimics the S&P 500. But in general, if you're not a pro and you're not managing portfolio of individual stocks, then you should be very careful about fooling around with most of this stuff. Here's the bottom line. At the end of the day, I think a cheap S&P 500 index fund is the least bad way to passively manage your money, better than the vast bulk of actively managed mutual funds. But an index fund owns everything, the good, the bad, and the ugly. And if you have the time to do your homework, I believe you can beat the performance of an index fund by picking stocks yourself, maybe leaving the bad and the ugly out of it. Now, if you're not the time now, stick with the index fund, or, and join the investing club, we will help you to the homework. Let's go to Eric in Tennessee, Eric. - Hey, Jim, this is Eric from Park City. My question is in regard to fundamental valuation of a stock. If you could only had access, if you only had access to four indicators to examine, what four measurements would you choose to look at? - Okay, I would look at sales, I would look at earnings, I would look at margins, I would look at total, the total addressable market, see how thin could be. All those will give me exactly, if you just told me it was XYZ Corp, I could give you a sense of what I'd be thinking, provided I had some historical data ahead of me. Let's go to peros in California, peros. - Hey, Jim, I just wanted to thank you for your show. It's been a great learning experience for me, navigating the markets with you. - Thank you so much. - I wanted to, yeah, you're welcome, really appreciate it. So I just wanted to ask you a question here. I know Joe Terranova is a huge friend of yours, and I'm huge on fundamental and technical analysis, and use them both to make my investment decisions. So my question is, even though a company is showing strong fundamentals, is it a good idea to incorporate technical analysis as well, for example-- - The whole way, I think everything should be included. Now tell you why, because whatever makes decisions and a lot of big fund managers use those decisions, and they use technicals, means that you should include 'em into your thinking too. Even if you think they shouldn't, all available information that is good should go into your decision-making, including technical analysis. All right, and index fund owns everything. You're good, the bad, and the ugly. So if you do have the time to do your own homework, oddly, you can be the performance of an index by picking stocks yourself. Much more mad money at it. I'm giving you the lowdown on financial security from college so all the way to retirement. And later, my colleague, Jeff Marks, will join me to answer some of your more burning questions. So stay with Cramer. (upbeat music) No matter how good you are at picking stocks, if you don't know all the Byzantine rules about what kind of accounts you keep your money in, or how to manage your personal finances, or how to get the most bang for your buck when it comes to major lifetime expenses, then you could be missing out on some terrific gains or losing a fortune to hidden fees. I admit this kind of stuff isn't as fun as picking stocks. You know, I like picking stocks, but over the course of your lifetime, it really can help you build up more wealth than a couple of great stock picks. And the simple truth is that I don't want you leaving the money on the table just because nobody could be bothered to explain it to you. Say the finer points of retirement investing? With that in mind, let me explain whether it makes sense for you to use a regular 401(k) or an IRA, or for you to go with a Roth IRA, which is a term I'm sure you've heard countless times. Now, I know I've talked endlessly about the benefits of using the individual retirement account or the IRA for short, and a 401(k) plan to invest retirement. I don't wanna be the dead horseier. But this is a subject I get a ton of questions about every day, should I put my money in a Roth IRA account or a regular one? Let's start with a Roth IRA, which anyone can contribute to as long as they make less than $153,000 a year. I think that aside from the earned income tax credit and all the temporary COVID stimulus, the Roth IRA may be the single greatest thing our government has done for low-income families since the end of the war on poverty, which it best ended in a draw with poverty possibly waiting on points. If I were to kill the forest, I'd make the limits for the IRA investing the same as the limits for 401(k). That's gonna be a theme of mine for the rest of the year. It's ridiculous that they aren't. But the industry doesn't seem to care because they make a lot more money off of 401(k) plans. There's no other reason I can find for why you can contribute roughly three times as much money to an IRA. I'm sorry, to a 401(k) as an IRA. Three times 401(k) over an IRA. We need to allow people to put at least 100, let's say, how about this? You put $10,000 in an IRA per year, much more in the current cap and even a little higher than what the contribution limit would have been if you just started these accounts in 1975 and adjusted the initial guidelines for inflation. Yes, I'm championing $10,000 in a bust. I am your friend on this and I will not stop until we get it. I told you all about our regular IRA, let's you take pre-tax income, invest it. And then your gains can compound year after year, decade after decade, totally tax-free until you decide to start withdrawing money once you're retired. But a Roth IRA, that works differently. With a Roth, you make contributions using after tax income. So in other words, unlike a regular IRA, putting money into a Roth won't decrease your tax bill, at least not upfront. On the other hand, once your money's in a Roth IRA, you'll never pay taxes on it again. As long as your cash remains in the account, you don't pay capital gains tax. You don't pay dividend tax. And when you withdraw it, which you can do without penalty after the age of 59 and if they're done in a half, I should say, you don't pay any income tax on your withdrawals, none. Basically the Roth, you pay taxes now so you don't have to pay any income tax 30 or 40 years from now when you're retired. There's one more positive point about a Roth. After five years, you can withdraw the money you've invested, not your gains, just the amount you contributed. And you won't get hit with a 10% penalty, which is what happens when you try to withdraw money from a regular IRA before you hit that magic age of 59 and a half. That's very, very, very different from a regular IRA, where you don't pay any taxes on your contributions now and your gains don't get taxed within the account. But once you start withdrawing the money, every penny you take out is taxed. And it's taxed at ordinary income, which means that when you're trying to decide between a Roth IRA or a 401K and a regular IRA or a 401K, you need to determine whether it makes more sense to pay income tax now with a Roth or to wait and pay income tax once you've retired the regular account. In short, you're trying to figure out whether you'll be in a higher tax bracket if you're retired or lower one. Obviously, this is really a complicated question. That's a lot to do with the specifics of your situation, your career, and simply how old you are. By my quick rule of thumb for anyone whose marginal tax rate is 22% or less, which is most of America, I think you go with a Roth, better to take the hit upfront than allow your Roth IRA to compound tax free for the rest of your life. Remember, for those of you who don't have the time to pick your own diversified portfolio of five to 10 stocks, the smartest thing you do is just park your retirement money and a low cost income fund that mirrors the S&P 500. As you get older, you can add some bonds, but really, until you actually retire, stocks should make up the lion's share of your retirement investments. I know I've said this before, but I'll keep repeating it until they take me off the air, because it's so necessary. It's so contrary to the conventional wisdom. How about a Roth 401K? All right, this one works just like a Roth IRA, meaning you make contributions with extra tax income, and then you never pay taxes on that money again, except because it's a 401K plan. It has, again, a much higher contribution limit than an IRA. There's one other big difference. Unlike a Roth IRA, a Roth 401K doesn't have any kinds of means testing. No matter how much money you earn, you can take advantage of a Roth 401K as long as your employer decides to give you the option. Of course, all these decisions depend on what you think the future will look like. If you believe that taxes are headed ultimately much higher over the course of your lifetime, then a Roth 401K, where you pay your taxes now and pay nothing in the future, is the way to go. Either if you're making a lot of money in the present. At the end of the day, though, this is both beyond our control and beyond our ability to predict. The bottom line, the lower your present income and then the lower your tax rate. A Roth 401K or Roth IRA lets you pay those low rates now and never worry about taxes again for your retirement money. So the less money you make, the more likely that a Roth is for you. It's that simple. And when you're saving for retirement, don't worry about what can go catastrophically wrong, 30 or 40 years in the future. Just worry about making the best choices right now. If you have money, it's back, get to the break. (upbeat music) (upbeat music) - Lately we've heard a lot about the crushing burden of student loans and what the government should or shouldn't do makes some of that burden go away. We lived through a years long moratorium on repayments during the pandemic, which helped supercharge the economy. In study after study, kids who graduate with no debt end up being worth a lot more money than their classmates who have outstanding student loan balances. Although as I said before, student debt is a heck of a lot cheaper than credit card debt. So it really don't sweat the program too much. Problem here is that it's simply that there's so darn much of it and you can't get rid of it in bankruptcy. So for any of you who are parents or are thinking of becoming parents, let me just tell you right now that there are very few things you can do for your kid's future that are better than paying for as much of their college education as you can afford. Of course, if I were to make a kind of a Maslow style hierarchy of financial needs, I'd tell you that's more important for you to save and invest retirement, which is why I talked about how earlier in the show, why prioritize yourself over to your children? Simple, because if you don't have that retirement money, who do you think's gonna support you, the kids? If you ever want grandchildren, you'll need a retirement fund. Otherwise, your children will spend ages taking care of you instead. However, if you saved enough retirement in a given year, then it's time to start thinking about college, even if your kid's only a toddler. And the best way to save for college hands down is through what's known as a 529 plan. Now, these plans vary by state, but the general rules apply across the country. Now, there's two kinds of 529 plans. First, some states let you use a 529 as a hedge way to hedge against tuition inflation. You can buy college tuition credits at today's prices and then use them in the future. That's not what I'm talking about though, especially not in a world where major national politicians are talking about making tuition free public universities. No, I want you to use a 529 savings plan. Again, these are run by states, but generally speaking, a 529 doesn't let you manage your own portfolio. You have to pick between a mix of different mutual funds, just like with many 401(k) plans. This is not my favorite way to do things. I prefer you to have control over your assets, but 529s have so much going for them that I'm going to swallow this one flaw. Remember, when you can only choose between funds, go for a low-cost fund that mirrors the market, like an S&P 500 index fund. So what are the rules for a 529 plan? All right, let's say you've just had your first child. Congratulations, if you're gonna afford it, you should start a 529 with your kids as the beneficiary right then and there. That's what I did. Well, maybe wait a couple of days after all, you just had a baby, although I didn't. Anyone who's read Confessions of a street act knows, I traded big blocks about cola throughout the whole birthday. And mentally, not my finest hour, although the trades only worked out financially, if not for me, I didn't really help these at home. Here's how 529 works. The contributions are not tax deductible. So you're paying for this with after-tax income. Once your money's in the 529 plan, you don't pay any taxes on your gains, so they can compound tax-free year-for-year, which is what I like so much. It's a lot like a wealth IRA, except for college, rather than retirement. Because of federal gift tax laws, you can contribute 17,000 a year, if you're single, or 34,000 if you're married, and you file your taxes jointly. That is a heck of a lot of money. Oh, and by the way, your kid's grandpaors can contribute to the same 529 plan too. And if you don't have the money, a grandparent can also start a 529 with your kid as the beneficiary, although for financial aid reasons, it's better to have a parent to do it. Now, let's say for some reason you or your parents are sitting on a really huge sum of money. One of the cool things about a 529 plan is that you can front load five years' worth of contributions without incurring the federal gift tax, as long as you don't write any checks to the plan's beneficiary over the next five years, which is not hard, because who writes checks to a seven-year-old? In other words, a single parent or grandparent could potentially invest $85,000 into a 529 plan right from the start, or if you're married and filing to only, you can contribute $170,000. The next five years after that, you won't be able to contribute anything without getting hit by the gift tax, which is something you don't want. But honestly, once you've dropped that kind of money to a 529, you won't need to make that many more contributions. The key here, though, is that you want to get that money into your kid's 529 as early as possible. That's because the greatest of these plans is all about the power of compounding. Given that you don't pay taxes within the 529, if you can sum up, contrived, you contribute $85,000 wherever the bat, and you invest that money in a low-cost index fund that mirrors the market, the rule of thumb is that over time, you'll make an average of roughly 8% per year, 8%. Then by the time your newborn is 18, you should have tripled your money. 85 grand turns into 340,000 grand? That's enough for expensive private college education and a decent chunk of law school to boot. I know most people can't frontload a 529 and plan like this, but if you can frontload, it's the best strategy. Oh, and for grandparents, this may sound kind of grim, but your 529 plan contributions won't count towards your estate tax. Hey, to borrow a line from the wife of Brian, always look on the bright side of death. Last thing about saving for college and grad school, any money in a 529 plan that you don't use, you can transfer to another relative. We're talking siblings, parents, even first cousins. By the way, if you save all this money and your ungrateful kid decides not to go to college, you can just withdraw the money from your 529 plan. You'd just take it. Although you'll have to pay taxes on any of your gains along with a 10% penalty. Here's the bottom line. Paying for your kid's college education isn't as important as providing for yourself in retirement, at least not financially. But if you have children that if you've made enough retirement contributions for the year, putting money in a 529 college savings plan should be the next item on your agenda. Stick with Kramer. I always say my favorite part of the show is answering questions directly from you. Can I bring in Jeff Marks, my portfolio analyst partner in crime, help me answer some of your most burning questions. Now, for those of you who are part of the investing club, Jeff will need no introduction. For those of you who aren't members, I hope you so. You got it, join already. I would say that Jeff's insights in our back and forth helped me do a great job for all mad money viewers. And I think in some ways more important than to say it, members of the club. And if you like this, be sure to join the club. What's really interesting, just so you know, is that he and I go at it every day. And we don't agree. If we read, what would be the point? First up, we're taking questions from Gregory and California. As hi, Jim, I started with the investing club two months ago. And I should have trusted you, thank you. You have my attention now, thank you. Is there an objective way to determine intrinsic value? If so, where is clear information on the subject you get enough? Now, this is something that you and I may disagree on. I am more-- or you are more science. When I think about a company that has intrinsic value, I often think about, can we do without it? How special is it? What's the total addressable market? Do I value the market cap as equal to the opportunity? That's a very-- my own way to look at it. You, on the other hand, I think are far more in a lid and more precise. Well, there's more than one way to skin a cat. I think one way you could do it is look at the price to earnings multiple of that company versus some of its peers. Then compare things like revenue growth, gross margins, free cash flow, and stack them up one against each other. And that could be a way to determine if a stock is cheap or expensive versus the group. Totally. And I think that when I look at companies and I say that I want to emphasize, let's say, Eli Lilly over a bristle, I look at the fact that the growth rate makes us so that I'm not as worried about the price to earnings ratio. But then I've got you bringing back to Earth. It's always reminding that sometimes price to earnings ratio if we go to sky high could create problems. And we are in the end at trust. And we must do what's right. Next, we have Robert New York, who has high gym. I don't want to sound like a pig. But if I'm planning to hold a stock for the long term, why should I take profits in a company when I know there's an excellent chance to stop continuing to rise? OK, so here's why. You can't become the company. When I look at an Eli Lilly, which I think has got the biggest pharmaceutical ball time, I mentioned twice, no, I'm sorry, but it's all my money. We could easily become the Eli Lilly fund because it becomes dominant. We could become the Apple fund because it comes dominant. So what we try to do at all times is make it so that we do not swing from one company. And that's what makes us feel like you've got to do some trimming. Yeah, I think there's also a difference, too, between trimming versus selling. If we've learned anything from 2022, it's that even the best companies in the world with the best products, great balance sheet management, no one was immune to a significant pullback. So if you can avoid something like that, then it favors trimming, even if it's such a great company. Jeff perfectly put. Now, I'd like to say there's always a bull market somewhere, and I'm trying to find it just for you right here at MidMoney. I'm Jim Kramer. See you next time. All opinions expressed by Jim Kramer on this podcast are solely Kramer's opinions and do not reflect the opinions of CNBC, NBC, Universal, or their parent company or affiliates, and may have been previously disseminated by Kramer on television, radio, internet, or another medium. You should not treat any opinion expressed by Jim Kramer as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. Kramer's opinions are based upon information he considers reliable, but neither CNBC nor its affiliates and/or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. 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