Jim Cramer talks some sense

Jim Cramer

I love div­i­dends, but I make the assump­tion that peo­ple have some funds before they get start­ed. Whether the funds are the hold­ing pen where they accu­mu­late mon­ey to invest, or they have funds in their com­pa­ny 401K as their first adven­ture in invest­ing.

In my book, I rec­om­mend indi­vid­ual stocks because we’re look­ing for con­ser­v­a­tive com­pa­nies that val­ue their div­i­dends enough to increase them every year. However, I also talk about diver­si­fi­ca­tion by look­ing at your invest­ment strat­e­gy in an holis­tic way — it involves your 401(k)/IRA, your home, you emer­gency cash sav­ings, etc.

Some Jim Cramer brilliance

I came across a great way to express this in a recent Jim Cramer inter­view. The inter­view is a great read — espe­cial­ly the begin­ning where he talks about par­ent­ing and the dif­fer­ences from when he was grow­ing up.

Here’s a quote about how he thinks peo­ple should get start­ed invest­ing. I agree in prin­ci­ple:

In the last five years, what I’ve been say­ing is, “OK, I want every­body to own an index fund, and until you have $10,000 in an index fund, I don’t even want you to think about a sin­gle stock. There’s too much sin­gle-stock risk.” So every­body has to have an index fund, and for your 401(k) and your IRA, I would real­ly pre­fer you to have an index fund. And when you final­ly have enough mad mon­ey, we can build a diver­si­fied port­fo­lio, five, six stocks, but … this was hard-fought for me to do.

Elephant’s Paycheck differentiation

The most impor­tant thing about the Elephant’s Paycheck is cre­at­ing a suc­cess­ful habit for build­ing wealth.

I take one approach to invest­ing that uses Dividend Aristocrats as a way to fil­ter down to about 50 dif­fer­ent com­pa­nies that are on the con­ser­v­a­tive side, and also pro­vide increas­ing div­i­dends. Reinvesting div­i­dends com­pounds the pow­er of your invest­ing over time. It’s a pow­er­ful advan­tage.

Dividend rein­vest­ing, Dividend Aristocrats, com­pound­ing — these are tac­tics. To have a com­plete book, I had to pick some tac­tics to cre­ate a com­plete plan for peo­ple who need a com­plete solu­tion explained to them.

The impor­tant dif­fer­en­tia­tors pro­vid­ed by Elephant’s Paycheck are the met­rics I use to change people’s per­spec­tive. Through these met­rics we can change people’s expe­ri­ence invest­ing. The met­rics are designed to rein­force the behav­ior I want peo­ple to devel­op — long term invest­ing and wealth build­ing through the market’s ups-and-downs.

How to get started

If you’re look­ing to get start­ed from scratch, even before you look for indi­vid­ual stocks, remem­ber Stash (link is to my review of the app).

Stash is an easy way to get start­ed invest­ing, espe­cial­ly if you’re start­ing with a mod­est amount of mon­ey. It’s also great if you want to invest in align­ment to your social val­ues.

Don’t for­get: if you want an easy to read, authen­ti­cal­ly human invest­ing book have a look at The Elephant in the Room has a Paycheck (avail­able as PDF today, Amazon/iTunes in Q1 ’16). Reading it is a great way to kick of healthy mon­ey habits in 2016.

Please note: I reserve the right to delete comments that are offensive or off-topic.

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2 thoughts on “Jim Cramer talks some sense

  1. Looking at the Dividend Aristocrats list was the first place I went with build­ing out my long term div­i­dend growth port­fo­lio. I think many start­ing out as a DGI sim­ply screen for the high­est yields only to get burned by cuts or elim­i­na­tions down the road. The DA list should be “manda­to­ry read­ing” for any­one start­ing a port­fo­lio.

    • Hi Keith,

      Agreed. I think that for many peo­ple, even learn­ing about Aristocrats and Dividends is a big bar­ri­er. For oth­ers, they don’t under­stand the (sim­ple) math behind what makes them pow­er­ful.

      I’ll add one more pow­er­ful point. Companies are made of peo­ple, process­es, and pri­or­i­ties. A com­pa­ny doesn’t do some­thing “acci­den­tal­ly” for 25+ years straight (and as you know, there are many who have raised div­i­dends for 50+ years con­sec­u­tive­ly).

      It means that the com­pa­ny has a process & pri­or­i­ty to man­age the busi­ness in a way that enables the annu­al raise so that even in tough times (think Emerson Electric $EMR) they can raise the div­i­dend.

      Thanks for vis­it­ing. I encour­age read­ers to check out Keith’s div­i­dend invest­ing site http://divhut.com.

      David