WHEN YOU ARE investing for retirement, you
are in a race against time, says Mad Money's Jim Cramer while
discussing bond investments. </p>
Newsflash! There is no such thing as a get-rick-quick scheme to create sustainable, long-term wealth.
That is why Jim Cramer advises that the most reliable way to make your money grow is to do so slowly and with prudence. But that comes with a caveat, because too much caution is also bad news as well.
That means that when it comes to retirement, you can't hide your money and cling to safety, just assuming you will have enough money when you retire. A little risk in stocks with higher returns will ensure that you retire wealthier.
And while money does not equal happiness, being broke is a time-worn path to being miserable.
Conventional wisdom teaches that investors need to reduce as
much risk as possible when investing retirement money. However, Cramer disagrees.
"When you, either in your 401(k) or your IRA or just your discretionary investing account, put money into things like treasury bonds or stable value funds, you're effectively taking that money off the table. You're saying, this money—I'm not going to use it to generate more wealth, I just want to keep it safe," the "Mad Money" host said.
That is why Jim Cramer advises that the most reliable way to make your money grow is to do so slowly and with prudence. But that comes with a caveat, because too much caution is also bad news as well.
That means that when it comes to retirement, you can't hide your money and cling to safety, just assuming you will have enough money when you retire. A little risk in stocks with higher returns will ensure that you retire wealthier.
And while money does not equal happiness, being broke is a time-worn path to being miserable.
Conventional wisdom teaches that investors need to reduce as
much risk as possible when investing retirement money. However, Cramer disagrees.
"When you, either in your 401(k) or your IRA or just your discretionary investing account, put money into things like treasury bonds or stable value funds, you're effectively taking that money off the table. You're saying, this money—I'm not going to use it to generate more wealth, I just want to keep it safe," the "Mad Money" host said.
Simply put, if you load up on bonds in your 20s, 30s
or 40s, you will not generate enough money to retire comfortably,
especially considering the fact that the low rate on a 30-year Treasury
note is barely enough to outpace inflation.
"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, to be too cautious, too prudent and too risk averse. When you are managing your money, there's a point where all of your prudence becomes recklessness, and this is something you particularly see with people who want to save for retirement."
Cramer's rule to remember when selecting bond allocations is to go by your age. Here are his recommendations for bonds, by order of age:
Read more from Mad Money with Jim CramerCramer Remix: The biggest mistake of 2014
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----------------------------------------------------------
Some may think that Cramer's guide is very aggressive because it is counterintuitive to what investors have always been taught. However people are living longer these days, and bonds simply just won't cut it.
If you want to provide for yourself as you grow older, the upside to stocks will take you there when the money from bonds runs out.
"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, to be too cautious, too prudent and too risk averse. When you are managing your money, there's a point where all of your prudence becomes recklessness, and this is something you particularly see with people who want to save for retirement."
Cramer's rule to remember when selecting bond allocations is to go by your age. Here are his recommendations for bonds, by order of age:
- Younger than 30: No reason at all to own bonds
- In your 30s: 10 to 20 percent of your portfolio
- In your 40s: 20 to 30 percent of your portfolio
- In your 50s: 30 to 40 percent of your portfolio
- 60 to retirement: 40 to 50 percent of your portfolio
- After retirement: Own some stocks, especially high yielding stocks that can generate more income with less risk, approximately one-third of your portfolio
Read more from Mad Money with Jim CramerCramer Remix: The biggest mistake of 2014
Cramer: Taking advantage of a decline
Cramer's 8 questions you must ask
----------------------------------------------------------
Some may think that Cramer's guide is very aggressive because it is counterintuitive to what investors have always been taught. However people are living longer these days, and bonds simply just won't cut it.
If you want to provide for yourself as you grow older, the upside to stocks will take you there when the money from bonds runs out.
Questions for Cramer?
Call Cramer: 1-800-743-CNBC
Want to take a deep dive into Cramer's world? Hit him up!
Mad Money Twitter - Jim Cramer Twitter - Facebook - Instagram - Vine
Questions, comments, suggestions for the "Mad Money" website? madcap@cnbc.com
Call Cramer: 1-800-743-CNBC
Want to take a deep dive into Cramer's world? Hit him up!
Mad Money Twitter - Jim Cramer Twitter - Facebook - Instagram - Vine
Questions, comments, suggestions for the "Mad Money" website? madcap@cnbc.com
Abigail Stevenson
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