Mad Money

Cramer: Increase your position in cash

Cramer's Playbook: Keep cash in portfolio

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

Worried about missing the next leg higher? Jim Cramer thinks you'd do better taking profits.

That is, as a professional investor Cramer always follows a disciplined investment regimen and right now that regimen demands a larger position in cash.

Now make no mistake, this isn't a market call. It's an investment discipline. That is, Cramer believes that the higher the stock market goes, the more cash you should be keeping on the sidelines.

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"You read that right, when everything's roaring, when the averages have had an incredible run, when stocks are making you a killing, that's the moment when you actually want to increase your portfolio's cash position," Cramer said.

Although that may seem counterintuitive, Cramer insists that it isn't.

That's because as a pro who has been involved with the market for over three decades, Cramer is always preparing for the next sell-off. "And there's always a sell-off right around the corner," Cramer added.

Therefore, as the market advances, Cramer believes it's prudent to raise cash so you can put that money to work again during a future decline, when stock prices are lower.

Of course that begs the question – how much?

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"Ordinarily, I think you should keep about 10% of your portfolio in cash. But after a big run like the one we've had over the last few weeks, it might make sense to have an even larger cash position, especially if you're concerned that the rally could be on its last legs," Cramer explained.

And in the event that you're fully invested, Cramer hopes that you move somewhat aggressively.

"Never underestimate the importance of keeping some cash in your portfolio. You need it if you want to be able to quickly and carefully buy stocks into weakness. So for those of you who are fully invested, right now you've got a terrific chance to take advantage of the market's recent strength and use it to build up your cash position by selling some stocks into strength. That's not a criticism of this market, it's simply the kind of discipline you need to practice if you want to be a good investor."

Call Cramer: 1-800-743-CNBC

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