When it comes to investing, CNBC's Jim Cramer always says investors must have two discrete places for their cash. The first is a retirement portfolio, which is more conservative and should be invested through a tax-favored vehicle such as a 401(k) or an individual retirement account, the "Mad Money" host said. The second is a discretionary or "mad money" portfolio. This is the place to take more risks with money once a retirement fund has been invested. The first $10,000 you invest in the market should go to a low-cost index fund or exchange-traded fund that mirrors the S&P 500. This gives investors a way to get exposure to the stock market gains without putting in the time or effort needed to pick individual stocks. One of Cramer's top rules for young investors is that they should take more risks. That does not mean they should go crazy and speculate with all of their savings. But it does mean using some discretionary money to bet on high-risk long shots or smaller, lesser-known companies with massive upside potential.

The magic of compounding

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Unless you are born with a silver spoon in your mouth, accruing wealth does not come easily, which is why Cramer is so passionate about helping investors find 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," Cramer said. For instance, if $100 is invested in the S&P 500 and it gains 10% in a year, that investment will be worth $110. After another year it'll be worth $121; after a third year, $133. The gains will continue to grow, because each year, money is made from the previous year's profits. With that 10% average annual return, an investor can double his money in about seven years, Cramer said. "The magic of compounding works best the younger you are because that means you have more time for your money to grow," Cramer said. For instance, if a 22-year-old is just entering the workforce, she has more than 40 years before she retires. She can invest $10,000 in an S&P index fund right now with the anticipation that the next 40 years will not be too different from the last 40 years.

Managing bond exposure

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Cramer has always had the notion that excessive prudence can be one of the most reckless strategies of all. A heavy investment in risk-free U.S. Treasury bonds guarantees a very low return on an investment. For those who want to grow their capital, stocks are the only game in town. Stocks are a tool to make money, Cramer said, and bonds are for capital preservation — for protecting money and providing a small, steady return that can offset the impact of inflation. "Depending on how old you are, there is a huge difference in how you should approach the very idea of putting your money in bonds," the "Mad Money" host said. How much of a retirement portfolio should be kept in bonds versus stocks? Cramer broke it down by age: 20s: None

30s: 10% of your retirement fund; 20% if you are conservative

40s: 20% to 30% bonds

50s: 30% to 40%

60s: 40% to 50%

Post-retirement: Increase bond exposure to 60% to 70%

Investing with kids

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Cramer loves the public school system, but the truth is that it cannot be relied upon to teach children about money. "If you want your children to become fluent in the language of finance, you are going to have to do it yourself," Cramer said. That means not waiting until after kids go to college to teach them about financial literacy. Once kids go to college, they will be bombarded by credit card offers that could seem irresistible. Credit-card debt on top of student loans could send someone into debt for decades.

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