The truth about money in the U.S. is that unless you are born with a silver spoon in your mouth, there aren't many ways to become really wealthy. That is why Cramer is so passionate about helping investors plan for a viable financial strategy.
"Thanks to the magic of compounding, the earlier in your life you start investing in the market, the bigger your long-term gains can be," he said.
Cramer is confident that even if an investor doesn't have a high-paying job, as long as they save a decent chunk of their paycheck and invest it wisely each year, they can grow their wealth and become at least financially independent.
The 10 percent average return on the S&P 500 may not seem impressive at first, despite the fact that it's more than double what one can expect from a 30-year Treasury bond and way more than what a certificate of deposit from a bank pays.
However, with an understanding of the magic of compounding, it is impressive. For instance, if $100 is invested in the S&P 500 and it gains 10 percent in a year, that will generate $110, after another year it's $121 and after a third year it's $133.
Ever since the Great Recession, interest rates have been so low that Cramer hasn't been recommending that investors buy bonds. That isn't because "Mad Money" is just about stocks, it is because stocks and bonds play very different roles in a portfolio.
"In general, for the last few years, even when the stock market has been getting absolutely pounded, bonds simply haven't represented very good values versus equities," Cramer said.
However, as investors grow older, owning Treasury bonds becomes absolutely essential because bonds are simply safer. So, once investors have used the stock market to make themselves financially independent, they should put more money into U.S. Treasuries for protection.
How much of a retirement portfolio should be kept in bonds versus stocks? Cramer broke it down by age:
- 20s: None
- 30s: 10 percent of your retirement fund; 20 percent if you are conservative
- 40s: 20 to 30 percent
- 50s: 30 to 40 percent
- 60s: 40 to 50 percent bonds
- Post-retirement: Increase bond exposure to 60 to 70 percent