For those investors who are serious about getting rich, Jim Cramer says that means preparing for retirement — regardless of age.
"Notice I didn't say save for retirement. I said prepare, because just stuffing your money in the first national bank of Sealy, a.k.a. stuffing it into your mattress, or automatically saving it into an IRA or 401(k), great though those two tax-deferred vehicles may be, might not be enough to prepare for your retirement," the "Mad Money" host said.
First things first, should you put your money into an individual retirement account? Yes!
Now that you know what you should do with an IRA, what about a 401(k)? Yes, Cramer recommended to contribute to a 401(k) if it is available. Most companies will match contributions to a certain point, which is like getting free money.
You probably feel like you understand the company that you work for, and the excuse is that you're investing in what you know. I'm telling you, that excuse doesn't cut it.Jim Cramer
However, there is a caveat to contributing to a 401(k), and that is what the money is used to invest in.
Cramer advised that you should not use much of your 401(k) funds to buy stock in the company that employs you.
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Why? Because one of the key components to investing is diversification. Meaning that if you expose too much of your portfolio to the same sector, than you run an enormous risk.
Hence, investing your retirement money into the same company that is paying your salary is not a good idea. That is like putting your savings into the same basket as your paycheck.
What if you worked for a company like Enron and invested all of your retirement into their stock? Your retirement probably would have gone down the tubes along with the company.
"You probably feel like you understand the company that you work for, and the excuse is that you're investing in what you know. I'm telling you, that excuse doesn't cut it," Cramer added.
When dealing with investing, regardless if it is your 401(k) or your own mad money, diversification comes before everything else. Never put more than one-fifth of your funds toward the company that you work for, Cramer advised.
That way you can build a lasting retirement portfolio to take care of both you and your family.
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