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Mad Money w/ Jim Cramer 6/18/25 - Mad Money w/ Jim Cramer | Wave AI Podcast Notes

Mad Money w/ Jim Cramer 6/18/25

Wed Jun 18 2025

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 Disclaimer

Summary

Mad Money w/ Jim Cramer – Episode Summary (June 18, 2025)

Introduction: The Crucial Gap in Financial Education [01:24]

Jim Cramer opens the episode by highlighting a significant deficiency in the American education system: the lack of financial literacy. He emphasizes that while students are well-versed in subjects like chemistry and history, “financial literacy” is scarcely taught at any educational level. Cramer passionately states:

“There is a gaping hole in the American education system... financial literacy.” ([01:35])

He underscores the importance of understanding financial planning, retirement readiness, and investing—areas often neglected in formal education. Cramer’s mission is clear: to empower listeners with the knowledge to manage their finances effectively.

Understanding 401(k) Plans: The Good, the Bad, and the Ugly [03:15]

Cramer delves deep into the intricacies of 401(k) plans, outlining their benefits and potential pitfalls.

The Good:
- Tax Deferral: Contributions are made pre-tax, allowing investments to “compound year after year, decade after decade, totally tax free” until withdrawal. Cramer illustrates this with an example:
  
  “Suppose you're 30 years old and you start investing $5,000 during your 401k... by the time you're 60, those $150,000 of contributions should be worth over $511,000.” ([04:20])
- Employer Matching: Many employers offer to match contributions, effectively providing “free money” to the employee’s retirement fund.
The Bad:
- High Fees: Cramer criticizes the “over 2%” fees often charged by 401(k) administrators, which can erode investment returns significantly.
  
  “My number one rule is that before you contribute money to your 401 plan, you have to make sure it gives you the option to put your cash into something that's actually worth investing in.” ([07:45])
The Ugly:
- Limited Investment Options: Some 401(k) plans restrict participants to a narrow selection of mutual funds, limiting the ability to pick individual stocks or opt for low-expense index funds.

Cramer advises that if your 401(k) lacks robust investment options or charges exorbitant fees, it might be more advantageous to roll over the funds into an Individual Retirement Account (IRA).

The Superiority of IRAs Over 401(k)s [08:30]

Expanding on retirement accounts, Cramer advocates for the benefits of IRAs:

Lower Fees: Unlike many 401(k) plans, IRAs typically offer access to “actively managed mutual funds that charge less than 2%” in fees.
Investment Flexibility: IRAs often provide a broader range of investment choices, including individual stocks, enhancing the potential for higher returns.

Cramer emphasizes:

“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.” ([09:35])

Listener Segment: Navigating Investment Strategies [09:21 – 12:08]

Cramer takes calls from listeners, addressing their concerns and providing tailored advice:

Ian from Illinois [09:21]: Seeks guidance on balancing growth vs. dividend stocks.
- Cramer's Advice: Younger investors should “almost entirely be in stocks”, leveraging their age to absorb market volatility. Bonds can be gradually introduced as one approaches retirement.
Michelle from New Hampshire [10:07]: Concerned about managing investments in a down market.
- Cramer's Response: Maintain investment contributions regardless of market conditions. “Historically the rain does go away.” Avoid timing the market to prevent missing out on optimal buying prices.
Novice Investor Inquiry [10:50]: Asks about tools and methods for evaluating companies.
- Cramer’s Guidance: Emphasizes the importance of fundamental analysis—“evaluate them on price, earnings, future earnings, and overall value against peers.” Recommends joining the CNBC Investing Club for comprehensive education.

Debunking Mutual Funds and ETFs: Smart Investment Choices [14:38 – 29:11]

In a detailed critique, Cramer addresses the pitfalls of mutual funds and ETFs:

Mutual Funds:
- Actively Managed Funds: Often “underperform their benchmarks” due to high management fees.
  
  “The vast majority of actively managed mutual fund managers underperform their benchmarks.” ([22:38])
- Fee Structures: High fees can negate any potential outperformance, making them less attractive compared to low-cost index funds.
ETFs:
- Suitability for Trading vs. Investing: Many ETFs are designed for short-term trading, not long-term investing, which can lead to “significant costs” over time.

Cramer advocates for a combined approach:

“I think your best strategy is to pair a low fee index fund with a portfolio of individual stocks that you picked yourself.” ([25:10])

He further advises selecting S&P 500 index funds for their broad market exposure and minimal fees, allowing investors to benefit from overall market growth without the complexities of individual stock selection.

Deep Dive: Roth IRA vs. Traditional IRA vs. Roth 401(k) [21:28 – 29:54]

Cramer elaborates on the nuances of different retirement accounts:

Roth IRA:
- Contributions are made with after-tax income, but withdrawals during retirement are tax-free.
- Ideal for individuals in lower tax brackets now, anticipating a higher tax rate in retirement.
  
  “For anyone whose marginal tax rate is 22% or less... I think you go with a Roth.” ([24:15])
Traditional IRA:
- Contributions are tax-deferred, reducing taxable income in the present but subject to taxes upon withdrawal.
Roth 401(k):
- Combines features of Roth IRAs and 401(k)s, allowing higher contribution limits without income restrictions.
- Contributions are made with after-tax income, but withdrawals are tax-free.
  
  “The 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.” ([28:30])

Cramer encourages listeners to evaluate their current and expected future tax situations to choose the most beneficial account type.

Funding Education: The Power of 529 Plans [30:24 – 40:00]

Transitioning to education funding, Cramer discusses 529 Plans as a strategic tool for saving for college:

Benefits:
- Tax-Free Growth: Earnings accumulate without taxes when used for qualified education expenses.
- High Contribution Limits: Allows significant upfront investments to capitalize on compounding growth.
  
  “If you can somehow contrive to contribute $85,000 right off 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.” ([38:45])
Flexibility:
- Funds can be transferred to other relatives if not used for the intended beneficiary.
- Gift Tax Benefits: Allows substantial contributions without incurring gift taxes.

Cramer advises prioritizing retirement savings over education funding:

“Paying for your kids' college education isn't as important as professionally providing for yourself in retirement.” ([37:15])

However, once adequate retirement savings are in place, initiating a 529 plan is the next financial step for parents.

Expert Insights: Jeff Marks on Intrinsic Value and Investment Decisions [45:26 – 47:23]

Cramer introduces his portfolio analyst partner, Jeff Marks, to discuss methods of determining a stock's intrinsic value:

Gregory from California's Inquiry [45:10]: Asks about an objective way to determine intrinsic value.
- Jeff Marks’ Approach:
  - Price-to-Earnings (P/E) Ratio: Comparing a company's P/E multiple against its peers.
  - Revenue Growth, Gross Margins, Free Cash Flow: Assessing these metrics provides a comprehensive view of a company's financial health.
    
    “Look at the price to earnings multiple... compare things like revenue growth, gross margins, free cash flow.” ([45:30])
Robert from New York's Question [46:28]: Wonders why long-term investors should take profits despite strong fundamentals.
- Cramer’s Response: Advocates for portfolio diversification to avoid overexposure to any single company, ensuring that even if one investment falters, the portfolio remains balanced.
  
  “We do have to do some trimming, even if it’s a great company.” ([47:00])

Jeff Marks adds that trimming holdings can mitigate risks, especially in unpredictable markets:

“Even the best companies... no one was immune to a significant pullback.” ([46:45])

Conclusion: Strategic Financial Management for Long-Term Wealth [47:23 – 48:03]

Cramer wraps up the episode by reiterating the importance of a balanced approach to investing:

Diversification: Combining low-cost index funds with selective individual stock investments.
Continuous Education: Encouraging listeners to join the CNBC Investing Club for in-depth financial strategies.
Long-Term Planning: Emphasizing retirement and education as critical components of financial health.

He leaves listeners with a reminder of the complexities of financial decisions and the value of professional guidance:

“No matter how good you are picking stocks, if you don't know all the Byzantine rules... you could be missing out on some terrific gains or losing a fortune to hidden fees.” ([47:50])

Notable Quotes:

“There is a gaping hole in the American education system... financial literacy.” – Jim Cramer ([01:35])
“If the company you work for matches your 401k contributions up to a certain point, take them for all they’re worth.” – Jim Cramer ([09:35])
“The vast majority of actively managed mutual fund managers underperform their benchmarks.” – Jim Cramer ([22:38])
“For anyone whose marginal tax rate is 22% or less... I think you go with a Roth.” – Jim Cramer ([24:15])
“We do have to do some trimming, even if it’s a great company.” – Jim Cramer ([47:00])

Final Thoughts:

This episode of Mad Money with Jim Cramer serves as a comprehensive guide to navigating the often convoluted landscape of personal finance and investing. From the foundational aspects of retirement planning and the pitfalls of mutual funds to strategic savings for education and the importance of continuous financial education, Cramer equips listeners with actionable insights and strategies to build and preserve wealth effectively.

For those seeking to deepen their financial knowledge, joining the CNBC Investing Club is highly recommended, offering access to exclusive resources and expert guidance tailored to individual financial goals.

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Transcript

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Jim Cramer (1:24)

Hey, I'm Kramer. Welcome to Mad Money. Welcome to Cramerica, Bill. My friends, I'm just trying to help you make some money. My job is not just entertain, but to teach you. So call me at 1-800-743-CNBC or tweet me at Jim Cramer. 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 Florida three languages with a deep understanding of quantum physics or ancient philosophy. But you know the one thing they almost never teach you in middle school or high school, say nothing of 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 a thousand times more likely to read Marx's Das Capital 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 CNBC Investing Club, with the charitable 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 going to 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 dodo and now the 401k is the main way that Americans save 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 Mercury, Irish Republican Army. I'm not even talking about the Inflation Reduction act for that matter. I mean the Individual Retirement Account for those of you who are about to change the channel because the whole idea of saving for 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 favored 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 your 401k contributions every year if you can afford to. Right now the maximum contribution is over 20 grand, with room for an additional seven grand if you're over 50. But it tends to raise price 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 chunk of change even with these contributions coming from your pre tax income. However, sometimes I think it'd be the wrong approach. I'm not going to sing the praises of the Noble 401k plan or 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, problematic features will eat away at your returns, sometimes through 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. Then I'll tell you whether it makes sense for you to contribute more money to your own 4.1K. Maybe there's a better way for you to invest for retirement. First, the 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 of 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 wonder of the world. Suppose you're 30 years old and you start investing $5,000 during 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 401 plan. Because that money is 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 taxpayer status, you know what? That number would be roughly $110,000 lower. What a huge break. You only ever pay taxes on your 401k money once, when you decide to withdraw it. At that point, your withdrawals are taxes, ordinary income. And since you're likely 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, your employer might say, throw in 50 cents up to a certain point. That's free money for you. It's also untaxed. 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 Iraq, which has the same exact tax favor status as a 401k. Now you can only contribute 6500 a year to your IRA, or 7500 if you're over 50, and that's an outrageously low amount. IRAs rolled out in 1975 and while they raised the contribution limit since then, the increase has not kept place within face inflation. If it had, the limit would be more than 80 $500. Now I want it personally to go to $10,000 and I'm 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, there are 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. Most actively managed mutual funds charge less than 2% and they're, you know, actively managing 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 widely from company to company. Now some of them give you a terrific range of choices and even let you pick individual stocks. But others are more limited, only giving you the choice of a couple dozen different mutual funds. So for those of you who can't pick your own stocks in your 401, my number one rule is that before you contribute money to your 401 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 in how to pick stocks at the CBC Investing Club because I believe it works. You should be skeptical of 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 one that mimics the S&P 500. However, if your 401k doesn't even offer that or it charges exorbitant fees, then just go with a self directed IRA from a full service discount program like a Fidelity or Merrill Edge so you have control over your money. The bottom line on 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 in Illinois.

Jim Cramer (14:09)

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 Cramer look like? Hey, for those of you who didn't get that reference, Google's your best friend. Because this is a show about money, let's stick to the more mainstream elements of the Kamerican 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 had to take a class on personal finance before you could graduate from high school? I think it's mandatory. Like those awkward health cases 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, 6 months, California. I sure wish I had an 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 out of 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. Teach you how to do this is one of the reasons I actually put so much time and created the CNBC Investing Club. I'm always thrilled when I see members of the younger demographic who are taking active hand and managing their own money. Too many people start saving and investing too late and making their lives a lot more difficult than 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, truly ready. When they are, in fact, better things for them to do with their money. And that's why I have three lessons and a caveat for all 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 credit card. I mean, this is especially true for younger people because banks have gotten really aggressive about offering credit to college students. No matter how much money you rack up in the stock market, if you're carrying a balance of your credit cards, then it's going to eat new returns. And 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 darn credit card balance and flip. Take a little each month, but in 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 out 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 shoot, but not enough to pay all that interest and be able to afford the biggest boombox in the world, which is, of course, my first priority. So I paid down the debt pronto and got my Dreambox two months later. I'll never forget how proud I was with that box on my shoulder, swinging in the breeze as I worked my way from 46ft to my studio 70. Second, 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 three lessons for young investors. First, this advice is really for everyone out there, regardless of age or education level. But it especially applies to friends, fresh college grads. You need to save money. I recognize that not everyone has an inherent predisposition to save. We can't all be 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 if we take my let's say if you join the club, you'll get this. Whereas leaving money in a savings account or certificate of 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 going to 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 risk than say a gray 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 upside is huge but so is the potential downside. Or you can play with options. I'm fine with that. Why is that? What's not because young people are naturally better speculators. 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 got 40 odd years the workforce to earn it back. Then 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. Yeah, you got to have some bonds, more 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 get old person. I get too many calls. People say oh I'm 40% bonds because I'm 22. Are you kidding me? You should own any bonds. So young people, I want you to take this advice to heart. Especially as I suspect that the recent college grads most likely to invest in the market are also the ones who are the most responsible, most prudent about their money. And prudence is great when you're putting together a budget to live within your means or 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, a lot of potential. Even if they blow up on you and 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 canard 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 of it off, but please don't be hurried up about it. I'd rather have you invest now and pay later. Plus, the Democrats are going to keep pushing various forms of student loan forgiveness whenever they're in power, meaning if you drag things out, you might have paying less. Final lesson for Young investors Like I said before the break, it's never too early to start investing for retirement. Retirement, use your 401k if your employer will match part of your contributions as I told you earlier, and especially put some money into a Roth ira, which is ideal for younger investors and that I'm going to 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 or IRA. Especially an IRA that's a Roth bed. Money's packing.

Jim Cramer (22:38)

We live in a world where you have more choices about where to invest your money than ever before. A virtual infinity of ETFs, mutual funds, you name it. But more choice 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, or basically half the households in America have exposure mutual funds. Many of you don't have a choice. A lot of 401k plans don't 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 CBC Investing Club, we walk you through the whole process in extreme detail every day. What exactly is so bad about most 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, to put a brush here. 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 to fundraise. And that's part of the reason why in study after study after study, year after year after year, it's been shown that the vast majority of actively managed mutual fund managers underperform their benchmarks. In other words, if you invest in an actively managed managed fund for large cap US stocks and 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 beat its benchmark, the odds are good that any outperformance 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 fund business. Much more sink or squid. At my fund we compounded 24% annually after all fees versus 8% for the S and P over the same period. Yet I felt it every second about those fees and even chose not to take them during a year where I was only up a couple of percent versus a strong performance for the averages. Yes, I was that ashamed. Did a mutual fund manager do that for you? You can read all about it. Confessions of Australia Reed Act Might Tell all let's say my Tell Too Much Autobiography now here's the part where I say not all actively 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 is 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 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 in 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. Man 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 funds multi year outperformance. By the way, if you want to know the other secrets to that success, again, that's what we teach the investing club. But back to actually 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 a portfolio of individual stocks that you picked yourself. That's when I about talked about night after night and preach endlessly to club members. But for those of you who don't have the time to do to research individual companies or if your 401k plans just want you do it, let me tell you the smart way to invest in mutual funds. Ideally you want a cheap low cost index fund that mirrors the market as a whole. One that mimics the Standard Poor's 500. Index funds have ultra low fees. And with an S and P index fund you've got a vehicle that lets you 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 diversified. Now I know there are lots of sector based mutual funds and ETFs 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 ETFs, in most cases these vehicles are for trading, not investing. I'm not in favor of trip. Many ETFs 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 E etf, that's a simple way to play gold. And I like the ETFs of course that mimic 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 fund owns everything. The good, the bad, the ugly. And you do 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 don't have the time, they'll stick with the index fund or and join the investing club. We will help you do the homework. Let's go to Eric in Tennessee. Eric.

Jim Cramer (30:24)

Always. I think everything should be included and I'll tell you why. Because whatever makes decisions and a lot of big fund managers use those decisions and, and they use technicals means that you should include them 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. An index fund owns everything. The good, the bad and the ugly. So if you do have the time to do your own homework, I believe you can beat the performance of an index by picking stocks yourself. Much more mad money at. I'm giving you the low down on 50 security from college 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 Kramer. No matter how good you are picking stocks, if you don't know all the Byzantine rules about what kind of accounts to 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 401k 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 401k plan to invest retirement. I don't want to beat a dead horse here, 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 World War on poverty, which at best ended the draw with poverty possibly winning on points. If I were the king of forest, I make the limits for the IRA investing the same as the limits for a 401k. That's going to 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 401k 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 401k as an Iraqi. Three times 401k over an IRA. We need to allow people to put at least 100. Let's say how about this? You put $10,000 in 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 or bust. I am your friend on this and I will not stop until we get it. I told you you all about our regular IRA lets 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 retire. But a Roth ira, that works differently with the 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 up. 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 59 and 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 59.5. That's a very, that's 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 401, 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 with a regular account. In short, you're trying to figure out whether you'll be in a higher tax bracket if you retire to a lower one. Obviously, this is really a complicated question that has a lot to do 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 up front 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 5 to 10 stocks, the smartest thing to do is just park your retirement money in a low cost income fund that mirrors the s and P500. 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, yet 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 after tax income and then you never pay taxes on that money again. Except because it's a 401k plan, it has of yes 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 on what you think the future will look like if you believe the taxes are headed ultimately hot up much higher over the course of your lifetime than a Roth for 1k. Where you pay your taxes now and pay nothing in the future is the way to go, even 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, then the lower your tax rate. A Roth 401K or a 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 could go catastrophically wrong 30 or 40 years in the future. Just worry about making the best choices right now if you have money back after the break. 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 really, don't sweat the program too much. The problem here is 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 kids future 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 Abe Maslow style hierarchy of financial needs, I tell you it's more important for you to save and invest for retirement. Which is why I talked about how earlier in the show. Why prioritize yourself over your children? Simple. Because if you don't have that retirement money, who do you think is going to 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, after you saved enough for 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, a529 doesn't let you manage your own portfolio. You have to pick between a mix of different, different mutual funds. Just like with many 401k 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 willing 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? Let's say you've just had your first child. Congratulations. If you can 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 Striat knows I traded big blocks of alcohol throughout the whole birthing. Admittedly, not my finest hour. Although the Trades only worked out financially if not familiar didn't really help things at home. Here's how a529 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 after year, which is what I like so much. It's a lot like a Roth 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 and you file your taxes jointly. That is a heck of a lot of money. Oh, and by the way, your kid's grandparents 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 5, 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 7 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 jointly, 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 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 kids 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 taxes pay within the 529. If you can somehow contrive to contribute $85,000 right off 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 the expensive private college education and a decent chunk of law school to boot. I know most people can't front load a 529 plan like this, but if you can front load, 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 life 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, 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 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 kids college education isn't as important as professional providing for yourself in retirement. At least not financially. But if you have children, then after 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. Today I'm bringing in Jeff Marks, my portfolio analyst partner in prime, to 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. I hope you. So you got to join already. I would say Jeff's insights on 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, members of the club. And if you like this, be sure to join the club. What's really interesting just, you know, is that he and I go at it every day and we don't agree. If we all. If we agreed, what would be the point? First up, we're taking a question from Gregory in California as. Hi, Jim. I started with Investment Club two months ago and I should have trusted you. Thank 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? Again, now, this is something that you and I may Disagree on. I am more art, 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 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 a far more analytic and more precise.