‘Mad Money’s’ Mixed Bag

  Last week a reader brought to my attention an episode of Jim Cramer’s “Mad Money” — an episode wherein he referred to the 401(k) as a “mixed” bag. 

In it, he acknowledged the benefits of tax deferral, the benefit of compounding on returns, and — where it’s found, anyway — the “free” money of an employer match. In that, he was at least more honest about such things than many[i] who make their living offering investment advice (generally accompanied by a subscription fee to their services — which, to be fair, Mr. Cramer has and mentions in this show). 

In point of fact, Mr. Cramer would clearly prefer an IRA option — if the contribution limits were equal to the 401(k) — though they’re not even close (not to worry — he says he’s going to continue to fight to remedy that situation). Indeed, Mr. Cramer counsels that once you’ve gotten the full match in your 401(k), you should just put everything else into an IRA (though he doesn’t get into the “nuances” of contributing to both in the same year). 

But Mr. Cramer is also concerned about the “hidden” fees in a 401(k) — so much so that he counsels folks to “always” roll out of that 401(k) when they change employers. And little wonder — since he appears to think that your typical 401(k) is charging administrative fees in excess of 200 basis points — more than 2%, in other words. I’ve no doubt those can be found but would caution Mr. Cramer that those are not the “norm.”

That said, he told viewers they should be “skeptical” of a 401(k) plan that doesn’t let you buy individual stocks via a self-directed IRA — one that he maintains gives you “control” of your money. As he’s a stock picker (of sorts), it’s not surprising that he has an affinity for individual stocks[ii] rather than mutual funds (though he admitted that those who don’t have the time for the former might be well-served by investing in a low-cost index fund).

Indeed, as do most folks touting mass media investment advice, Mr. Cramer prefers the ability to go beyond the investment menu “constraints” of a 401(k) menu — and surely for individuals like him who have the time and expertise (or think they do) to make and track individual investments, that resonates.

Programs like “Mad Money” are ostensibly positioned for more experienced/engaged investors — though that did NOT seem to be composition of the callers to this particular episode. Just as well, because he wasn’t providing much more than high-level generic wisdom on basic tax deferral, compounding benefits,[iii] and a heavy dose of equities in your portfolio until you get to your 50s. 

The reality for most individuals, of course, is that without a workplace retirement plan, they don’t save for retirement, much less invest. The match may be “free” money for the individual, but it surely has a cost — one borne by their employer in support of their eventual retirement. The mutual funds Cramer rejects are — increasingly — a portfolio not only selected, but managed by professionals, either in a target-date fund or managed account. For most, it’s not “mad” money, after all — it’s about thoughtfully building a secure, reliable financial foundation.   

Those with “mad” money to spare might not need that kind of help — but plenty of “regular” people do.

• Nevin E. Adams, JD

 

---

[i] See Is the 401(k) Really a 'Horrible' Retirement Plan?, When You Assume, The 'Plot' Thickens

[ii] He did make an interesting argument for investing in stocks as a way to curb spending. Specifically, he noted that you’d have to sell your favorite stock in order to raise the cash to spend — and that you wouldn’t want to sell that favorite stock — so you wouldn’t spend the money.

[iii] One assumes that he’s more specific in his “investment club,” which came up several times during this program.

Commencement "Address"

This is the time of year when the nation’s graduates line up for accolades (and their diplomas). It is, for them, a beginning—a commencement of a new phase in their life. 

But ahead of that, most are given the “opportunity” to hear some words of wisdom and inspiration from an individual that they have likely never heard of (though their parents may have). In that spirit, I’d like to offer the graduates of 2023 some lessons I’ve picked up along the way:

Your first job can be like your first love—it will either bring a smile for years to come—or it can break your heart. And sometimes both. 

Just because you’re young(er), people are going to assume you know things you don’t—and assume you don’t know things you do.

Everything you’ve heard about your elders isn’t true. But some of it is.

There actually ARE stupid questions.

If your current boss doesn’t want to hear the truth, it may be time to look for a new one.

There can be a “bad” time even for good ideas.

Your work attitude often affects your career altitude.

When you don’t have an opinion, “what do you think?” is a good response. And sometimes even when you do.

People who ask for something ASAP probably want it sooner than you think is possible.

Emails (generally) don’t have to be answered right this minute.

Don’t be afraid to pick up the phone—BEFORE it rings.

If the only time your boss hears from you is when there’s trouble, don’t be surprised if they don’t look forward to your visits.

Book some quiet time in your day.

Most meetings really COULD be replaced with an email.

The world is made up of introverts and extroverts—learn and respect the difference(s).

A picture may be worth a thousand words, but it pays to read the fine print.

Never say you’ll never…

Always sleep on big decisions.

There is an inverse relationship between the number of people in a meeting and its productive output.

Never let your schooling get in the way of your education.

Sometimes the questions are complicated, but the answer isn’t.

And most of all, don’t forget that you’ll want to plan for your future now—because retirement, like graduation, seems a long way off—until it isn’t.

Congratulations to all the graduates out there. We’re proud of you!

- Nevin E. Adams, JD

'Lesson' Plans

Life has many lessons to teach us, some more painful than others – and some we’d just as soon be spared. But as graduates everywhere look ahead to the next chapter in their lives, it seems a good time to reflect on some lessons learned along the way.

It’s handy to know at least a little about sports and the weather.

Paying the minimum due on your credit cards is dumb.

Be willing to take all the blame – and to share the credit.

Know that there actually are stupid questions. Try not to be the one asking them.

Shun those who are cruel to others – and don’t laugh at their “jokes” – sooner or later, you’ll be a target.

Never say you’ll never.

“Bad” people eventually get what’s coming to them, though you may not be around to see it.

Always sleep on big decisions.

When it seems too good to be true, it’s generally not good nor true. 

Never let your schooling stand in the way of your education.

Sometimes the grass on the other side looks greener because of the amount of fertilizer applied.

Never email in anger – or frustration. And be extra careful when using the “Reply All” button.

If your current boss doesn’t want to hear the truth, it may be time to look for a new one.

Never miss a chance to say “thank you.”

Hug your parents – often.

If you wouldn’t want your mother to learn about it, don’t do it.

Bad news generally doesn’t age well.

There can be a “bad” time even for good ideas.

Your work attitude often affects your career altitude.

Comments that begin “with all due respect” generally aren’t.

Sometimes the questions are complicated, but the answer isn’t.

Remember as well that that 401(k) match isn’t really “free” money – but it won’t cost you a thing.

And don’t forget that you’ll want to plan for your future now – because retirement, like graduation, seems a long way off – until it isn’t.

Congratulations to all the graduates out there. We’re proud of you!

- Nevin E. Adams, JD
Got some to add? Feel free to comment below....