Investment professionals can create machines with fancy algorithms for trading and snazzy software for picking stocks to protect portfolios, but Jim Cramer knows investing all boils down to one word: diversification.
"I am offering a new kind of diversification that can help you, guide you toward what kinds of stocks I want you to have if you are going to manage your money yourself," the "Mad Money" host said.
Cramer recommended a personal portfolio with a minimum of 10 stocks and maximum of 15. That range allows investors to keep track of each stock and still do their homework.
In order to protect your portfolio, Cramer recommended covering the following five specific areas:
2. A dividend-paying stock with a high yield
3. Growth stocks
4. Speculative stocks
5. Stocks from a healthy geography
"Cover all five bases, and you'll have a portfolio that can win in any market," Cramer said.
The first stock Cramer recommended is a dividend-paying stock. After all, interest rates are headed higher whether we like it or not, he said. In a world where you cannot get enough income from bonds or certificates of deposit to really live on, a stock with a high yield is necessary.
"You need to own a stock — at least one, possibly more — with a big, high-yielding dividend, but unlike when we diversify by sector, owning two or even three high-yielders, but no more than that, can actually be a good thing," Cramer said.
That doesn't mean investors should own five dividend stocks, as then they would not be protected in the event that long-term treasury bond yields spiked higher to compete with the dividend stocks.
So in order to embrace Cramer's new way of diversification, a high-yielder is necessary. Dividends protect stocks and are a great way to add profits into your pocket. It's a win-win.