The name of the investment game for 2015, says Jim Cramer on CNBC’s Mad Money, is diversification. While stocks have been strong in 2014, there are always unknowns, and having exposure to multiple sectors can protect investments against downside. Cramer, who plays “Am I Diversified” with callers every week, spoke of a “new” kind of diversification that includes 5 different kinds of stocks. He recommends holding at least 10 stocks and no more than 15; it is important to dedicate an hour per week per stock for research.
The five areas include: gold, high yield, growth, speculative and an overseas stock from a healthy area of the world. Cramer was bullish on gold a few years, ago, but the yellow metal has not done much and has been volatile. Still, gold is insurance for a portfolio, but Cramer said no portfolio should contain more than 10% gold. While interest rates are headed up, it is still a good idea to own at least one stock with a rich dividend for protection. High yielders were good stocks to own when interest rates were low, but with QE stopping, one strong dividend name is still necessary. Growth stocks are those investors tend to pay up for, it is important to have an idea of what to pay for a stock. If the growth rate is strong, even a relatively high multiple can be forgiven. Speculative stocks are usually those that represent small companies that can be turned around. They usually have a single digit stock price. It is a good idea to have overseas exposure, but China and Europe have been weak. Still, there are significant opportunities in overseas stocks in healthy geographies.