Cramer's 'Mad Money' Recap: How to Gain From the Long-Term Game
Cramer said the promise of 401(k)s and IRAs is their tax-free status would allow higher returns over the decades. In reality, most 401(k) plans just stink, said Cramer, thanks to their high fees and severely limited choices.
Ideally investors should have a portfolio of five to 10 diversified stocks, said Cramer, but most 401(k) plans only offer mutual funds and bond funds. That's why Cramer advocated contributing in 401(k)s only to achieve any company match, then stop.
Beyond a 401(k), Cramer said investors need to contribute to an IRA, up to the maximum of $5,000 for 2012, or $6,000 if you're over age 50. What should you keep in this IRA? Cramer said investors ideally want high-yielding, dividend-paying safety stocks. But here, too, there is a caveat.
Cramer said investors need to steer clear of master limited partnerships, MLPs, or real estate investment trusts, REITs, in their IRAs. Own too many, he said, and you could end up paying higher taxes than if you purchased the stocks in a regular brokerage account.
Look for Secular Growth Stocks
While there's no such thing as a stock you can own forever, some winners do last longer than others, Cramer told viewers. Those winners are called secular growth stocks.
Cramer explained that most companies need a healthy economy to do well -- those are called cyclical stocks. But secular growers do well year after year, regardless of the economy. The key to finding these names is to look for the "big picture" themes.
But even secular stocks can have a shelf life, cautioned Cramer. A few years ago, Cramer was talking up the "mobile Internet tsunami," the transition from feature-phones to smartphones that would rake in billions for all those involved. But as the smartphone revolution took hold, it quickly became an Apple(AAPL) tsunami, disproving the theory that a rising tide lifts all boats.
Cramer said there's nothing wrong with owning secular growth names for as long as the story remains in tact, but investors need to remember that even the biggest waves eventually come crashing on the shore.