Cramer beat the market for years, yet tells retirees to buy the index

During his 14 years running a hedge fund, Jim Cramer generated annual returns of 24% — three times the S&P 500’s 8%. Yet when a caller asked, he advised putting two-thirds of a retiree’s $600,000 into an S&P 500 index fund.

The Mad Money host still insists that investors who do their homework can beat the market through stock selection.

Why Choose the S&P 500 After Outperforming It?

Pointing to that after-fee performance, Cramer dismissed the strict version of the efficient markets hypothesis, the view that all available information is already reflected in prices. Markets frequently act irrationally, he said, and that leaves room for stock pickers.

He still considers index funds the best choice for most people, a position he says he has held since 2000.

The deciding factor, Cramer said, is suitability — how much time an investor can devote and their temperament.

Dave, the caller, was asking on behalf of his girlfriend, a retiree in her early 60s with $600,000 across tax-deferred accounts.

The firm managing her money charges 1% each year, roughly $6,000 on that balance.

Dave said the portfolio had underperformed the S&P 500 and mostly steered clear of the Magnificent Seven, the group of mega-cap tech stocks.

“Obviously, if they can’t beat it, just go for and join it.”

Jim Cramer, host of Mad Money on CNBC

What Role Do Stock Picks Play in the Plan?

For the remaining third, he suggested six to 10 stocks, overweighting two or three, with most of them Magnificent Seven names.

Choosing individual stocks requires meaningful effort, he said, while index investing is fairly simple.

He also said he now reduces winning positions after they rise 20%.

A few days earlier, Cramer had picked gold instead of bitcoin (BTC) as a portfolio hedge, though he did not dismiss bitcoin outright.

Most new money entering the market is already flowing into index funds, according to Cramer, and his reply to Dave points in the same direction.

The implication is that even someone who describes himself as an outperformer treats passive funds as the default for most savers.