Invest in growth stocks alongside an index fund

CNBC’s Jim Cramer gave advice on how to build a balanced portfolio, suggesting investors both individual growth stocks and index funds.

“Putting some money in an index fund isn’t bad advice — it’s a good way to play it safe,” Cramer said. “But most people can’t afford to purely play it safe unless they’re already rich, which is why you have to put the other half of your holdings in a mix of individual stocks that you choose and a non-stock hedge.”

Picking one’s own stocks can be lucrative, Cramer asserted. But the practice is also risky, he indicated, so investors need index funds as a backup to hedge against inevitable investing mistakes.

Index funds are average by design, Cramer continued, saying they are meant to mirror American business. He indicated that index funds alone don’t necessarily make as much money as a top growth stock can.

He suggested investors looking to earn above average returns should buy several stocks across different industries, as well as a commodity holding like gold or crypto. Cramer emphasized it’s wise to seek out good growth stocks, which are ones that have done well historically. It’s also important to “put the work in,” when managing a portfolio, Cramer said, which means continually researching companies, keeping up with their earnings reports and following industry news.

“Of course, it’s better to be average than broke,” he said. “Which is why I still advise putting half of your savings in an index fund like the SPY, but you need to use the other half to go after bigger gains.”