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Jim Cramer's guide to investing: Use rallies to raise some cash

Scott Mlyn | CNBC
  • CNBC's Jim Cramer told investors it's important to prepare for bad days by raising cash while their stocks are on a roll.
  • "The next time we get a big up day or two, please, I'm begging you, use the strength to raise some cash," he said. "You might not know it, but without cash your portfolio has zero flexibility, and the best time to raise cash is when the market's on fire."

CNBC's Jim Cramer told investors it's important to use big rallies to prepare for the down days. In other words, you should raise some cash when your stocks are on a roll.

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"The next time we get a big up day or two, please, I'm begging you, use the strength to raise some cash," he said. "You might not know it, but without cash, your portfolio has zero flexibility, and the best time to raise cash is when the market is on fire."

Cramer emphasized that a rally is not just about turning a profit in the moment — it's about anticipating the future, and the bad days are as inevitable as the good ones. Investors get "the most mileage" out of a winning streak by doing some prep work so that they're ready for a rough patch.

But this does not mean investors should sell everything during a rally, Cramer said. It's wise to strike a balance between capital preservation, keeping your funds secure, with capital appreciation, or growing your money. Always having some cash on hand helps to protect a portfolio in the long run, he added.

Even stock of good companies can become too expensive, and Cramer said investors need to be willing to sell shares of even their favorite names when they start to soar.

"You should have a plan for selling every single one of your stocks, even the best ones, and you should make that plan before you ever purchase them, simply as a part of the process," he said. "Being a good investor means knowing when to get out, and it's better to make those decisions beforehand rather than waiting until the heat of the moment."

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