Where Jim Cramer says young people should invest their first $10,000

If you want to get rich, start investing — and do it sooner rather than later.

When you’re young, your biggest asset is time, thanks to the effects of compound interest.

But how exactly do you leverage time most effectively? And where should you put extra money as a young investor?

Jim Cramer, cofounder of financial site and host of CNBC’s “Mad Money,” answered this in a recent episode of Farnoosh Torabi’s “So Money” podcast: Invest your first $10,000 in index funds, he says.

Index funds are a type of mutual fund pegged to a stock market index, such as the S&P 500.

Before the financial crisis of 2008, he says he would have told you something different — to take your first couple thousand dollars and invest in four or five different stocks.

“Now I’ve changed my tune a bit,” he tells Torabi. “I want the first $10,000 in index funds because I feel that the market is so unforgiving, and that if you have two bad stocks out of five, you could get hurt. But once you’ve saved $10,000, then you have some mad money, and then you can be diversified with some stocks.”

When selecting your funds, be wary of fees that can eat away at your investments. They’re inevitable, but some fees are much lower than others, and you’ll want to invest in the low-cost funds.

As for Cramer’s top mutual-fund picks, he likes Fidelity Contrafund and Fidelity Magellan, both of which have relatively low costs.

NOW WATCH: TONY ROBBINS: What you need to do in your 20s to be more successful in your 30s

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