Jim Cramer, the CNBC host known for his stock-trading “shock jock” TV personality, has some advice for young savers on how to grow wealthy.
Thing is, his advice holds true for older savers and investors retirement, too. Here are three major takeaways from a recent segment:
First, you need time. A lot of time. Investments double in value every so many years, depending on your long-term rate of return. Stay in the market and it will double and then double again.
“Thanks to the magic of compounding, the earlier in your life you start investing in the market, the bigger your long-term gains can be,” Cramer said.
Second, you need to own stocks. It can feel wrong to own them during long stretches of time, a feeling which can lead you to selling. Don’t do it. Stocks beat bonds, gold and cash, hands down.
“Show me an asset class with a better average return. You can’t do it! Stocks aren’t just the best game in town, they are really the only game in town if your goal is to grow your wealth,” Cramer explained.
Did you really understand that second point? Probably not, considering how often people panic and get in and out of stocks for no reason. That’s why Cramer wants investors to commit to owning equities and to staying in them.
If the market falls in value, you have to see declines not as bad news but as an opportunity to buy more stock at better prices. Easy to say but hard to do — and essential for the best long-term returns.
“What I am saying is that when you are faced with a bear market … it probably makes more sense to start buying most stocks, rather than selling them, as long as you are willing to take some short-term pain,” Cramer said.
I am cherry picking here, of course. Cramer goes on to make the case for stock selection, which is understandable. His whole mantra is “buy and homework,” which is a given considering his career as a stock picker.
Another way to wealth
But the truth is, we’re not all stock pickers. In fact, most of us aren’t. We’re public servants, attorneys, teachers, managers, employees, parents, coaches and so on.
Chances are, you don’t wake up to a pre-market stock report and then read The Wall Street Journal cover to cover. Somebody does, and that person probably then gets on a train and rides into Manhattan every day to trade stocks for a living.
The other 99% percent of us never do that. Just because you can follow the stock market on your smartphone doesn’t mean you should. After all, eight out of 10 highly paid stock fund managers will underperform the index this quarter, this year and, most likely, for three or five years running.
Owning stock index funds and rebalancing them in a risk-adjusted portfolio is enough. As much as Jim Cramer dismisses “buy and hold,” it’s cheap, it’s effective and, when done right, it will allow you to retire on more.