Cramer’s Five-Year Plan

With the market dropping as many as 800 points in intraday trading, investors have to protect themselves. That’s why Cramer urged viewers who will need any significant amount of cash over the next five years to sell some of their stock holdings right now.

Cramer said during Monday’s Stop Trading that he thought the markets would see further declines, so he wanted certain investors to start hoarding cash. Parents who will need money for their kids’ tuition, people thinking of buying a car or home, or those expecting an increase in medical bills should all use any strength this market offers to take profits and build savings.

Cramer was trying to get viewers to think about their five-year plan because a drop in the Dow to 7,700 is a very real possibility, he said. We hit that mark in 2002 when conditions on Wall Street and in the economy were considerably better. Now we have credit and housing problems worldwide, the budget deficit has skyrocketed and unemployment’s on the rise.

Cramer screamed sell back then, and he’s doing it again. He may have been positive on the market at one point, but the situation’s changed. Europe’s in trouble, Lehman Brothers went bankrupt, AIG needed a bailout, and Wachovia and Washington Mutual collapsed into larger banks. He doesn’t want people panicking. But investors should definitely watch for any bounce in the market and use that to sell into strength.

Once enough money has been set aside for a five-year plan, then and only then can certain stocks be owned. Food and beverage names like Coca-Cola and Pepsi work, as do consumer goods companies like Colgate-Palmolive and Procter & Gamble. Drug stocks are worth considering, too. Put it this way: If you can eat it, drink it, smoke it, take it when you’re sick or wash with it, then you can own it.

Cramer also recommended stocks with high dividend yields, meaning they pay out more than Treasurys, though only as long as a company has enough earnings to cover the dividend. Stocks that are trading at or near their cash, such as KBR, are good as well. But stock mutual funds should be sold, at least in part, if you need money for the next five years. The risk is just too great right now, Cramer said.

Not all investors are the same, though, so if you don’t need money in the near term, for the next five years, then Cramer advises you to stay with the market. He doesn’t want every investor jumping ship. He’s still bullish on stocks for the long term. He just wanted investors who needed to raise cash to have the opportunity. For those people, in this environment, cash needs to be their biggest holding.

Jim's charitable trust owns Pepsi and Procter & Gamble.

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