Jim Cramer says investors should use these rules to build a turbulence-proof portfolio

Investors should follow a certain set of rules when building their portfolios to weather the market volatility that Monday’s rally suggests could happen, Jim Cramer said.

“When you see new, unseasoned merchandise exploding higher, along with names like Tesla surging on … a stock split, it tells you there might be a little too much excitement, a little too much froth, for the entire market. One or two of these runs would be fine, but when you see all of the speculative assets roaring in an overbought market,” prepare for some turmoil, the “Mad Money” host said.

Tesla is looking to split its stock to pay a stock dividend to shareholders, according to a filing Monday. The news led to Tesla stocks rising 8%, leading a tech rally for the day that included names like Microsoft and Amazon.

The Dow Jones Industrial Average gained 0.27%, while the S&P 500 rose 0.7%. The Nasdaq Composite increased by 1.3%.

The Cboe volatility index, Wall Street’s fear gauge, closed below 20 for the first time since mid-January.

On the heels of the market gains, Cramer listed rules investors should consider to successfully weather potential market turbulence down the line. Here are his suggestions:

  • The most important rule is to own an oil stock, since fuel prices are increasing. “My favorites are Chevron for a steady dividend. It’s pulled back too, and Devon [Energy] also pulled back, which pioneered a new way to reward shareholders,” Cramer said.
  • Choose some low price-to-earnings multiple stocks. Cramer said Google-parent Alphabet and Facebook-parent Meta, both at “historically cheap valuations,” are good options that can withstand soaring inflation.
  • Consider a health care stock that can do well even if the Federal Reserve‘s interest rate hikes slow the economy down. “My favorite remains Eli Lilly,” Cramer said.
  • Own stock of a consistent retailer that can keep ahead of inflation. Cramer recommended Costco and said to avoid Dave & Buster’s.
  • Own one or two speculative stocks, but be careful. “I think it’s a great way to stay interested in the stock market. … But if you’re going to speculate, you have to be prepared for the possibility that these stocks could go to zero. Never buy something like AMC or GameStop with money you can’t afford to lose,” Cramer said.

Disclosure: Cramer’s Charitable Trust owns shares of Amazon, Microsoft, Alphabet, Meta, Chevron, Devon, Eli Lilly and Costco.

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