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Got cash? Cramer sure hopes so

CNBC.com
Friday, 2 Aug 2013 | 6:00 PM ET
Best time to raise cash
Friday, 2 Aug 2013 | 6:25 PM ET
Mad Money host Jim Cramer explains how to prepare cash on the sidelines from a rally. "A short-term rally is your best opportunity to protect yourself from potential downside," he says.

(Click for video linked to a searchable transcript of this Mad Money segment)

There may be no better feeling than locking in a huge profit as the market soars higher; in fact that's as good reason as any to sell into a rally.

However that's not the only reason to sell.

Jim Cramer also recommends selling into strength and raising cash because it prepares you to make your next move.

Handing money over
Stockbyte | Getty Images
Handing money over

In a bull market, Cramer likes to sell into strength and then buy weakness. Therefore, when the market goes lower, that's when you'll want the cash - so you can make a shopping list, establish new entry points and then hit the buy button when you think a desirable stock has gotten too cheap.

Cramer recommends having at least 5 percent of your portfolio in cash most of the time, and up to 10 percent after a market decline. He said these percentages provide flexibility, should you want to leverage a sudden decline.

In fact, Cramer said that not selling something during a rally to raise cash is "downright reckless" — no matter how much you love the stocks in your portfolio.

And he thinks selling right after a rally — when a lot of other investors still want to jump in — can be extremely strategic.

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What's the bottom line?

Cash may be "the single most important part of your portfolio," said Jim Cramer. And during a rally the market is giving you an opportunity raise some.

"It's the smartest thing you can do," he said. "And it will save you a lot of pain."

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

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