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Stocks discussed in the in-depth session of Jim Cramer’s Mad Money TV program, Monday January 19.

First Steps to Long-Term Wealth

If you want to build long-term wealth, you first need to get your house in order. First, Cramer says it is important to pay down credit card debt. Interest on credit card debt cancels out any gains from stocks, so it isn’t even worth investing in stocks until debt is eliminated. Since medical emergencies are the major cause of bankruptcy, Cramer urges viewers to get health and disability insurance. Even young, healthy people need to pay attention to this advice. One injury or trip to the hospital can wipe out funds.

401(k) versus IRA

401(k)s are a great way to prepare for retirement, but don’t put in more than you need, warned Cramer. Since 401(k)s have high management fees and offer limited investment choices, it is best to put only as much as your employer is willing to match (i.e. if your employer will match a up to 3%, then put only 3%), and invest the remainder of your retirement money in a regular (not Roth) IRA. You will not have to pay taxes on IRA gains until money is withdrawn during retirement and you have more room to make other investment choices.

Say “No” to Automatic Deductions

Many rely on automatic deductions for their 401(k)s and don’t realize how much more they could be making if they were more proactive about the market. When there are great investment opportunities, it is time to take advantage. For instance, if the market drops 10%, it is time to double the 401(k) contributions for that month. The benefits may not be immediately obvious, but it doesn’t pay to let an opportunity slip by.

Stocks or Bonds?

Many people are scared about stocks, especially in the current market. However, bonds alone will not provide you with what you need when you retire; 4% just barely covers inflation. Stable-value funds are just a bit better than money-market funds and are not as good as high-quality bond funds, however, for growing a nest egg, one really needs stocks. Cramer recommends an inexpensive S&P 500 index fund. Bonds do have a place in a retirement portfolio, but not for people in their 20s. Thirtysomethings can have 10-20% of their portfolios in bonds, fortysomethings can have 20-30%, and another 10 percent can be added with each decade of age. However, retirees can still hold conservative stocks, especially as people are living longer these days.

What Not to Do with Your 401(k)

Many people think buying stock in the company that employs you is investing with what you know. Cramer thinks otherwise. Diversification is the key to a successful portfolio, and just buying up your company’s shares works against this principle. It doesn’t matter if you work for Apple, McDonalds or one of the stars of the S&P: Diversify.

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Source: Cramer's Mad Money - Building Long-Term Wealth (1/19/09)