Jim Cramer has not recommended bonds ever since the 2008 financial crisis because interest rates have been so low.

But that does not mean that there is not a place for bonds in a portfolio. In fact, he says they play an essential role in investing, especially as investors get older.

“In general, for the last few years, even when the stock market has been getting absolutely pounded, bonds simply haven’t represented very good values versus equities,” the “Mad Money” host said.

Cramer has always had the notion that excessive prudence can be one of the most reckless strategies of all. If too much money is invested in safe, risk-free U.S. Treasury bonds, that basically insures a very low return on an investment. So, for those who want to grow their capital, stocks are the only game in town.

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Stocks are a tool to make money, Cramer said, and bonds are for capital preservation — for protecting money and providing a small, steady return that can offset the impact of inflation.

“Depending on how old you are, there is a huge difference in how you should approach the very idea of putting your money in bonds,” Cramer said.

Cramer believes many financial experts tell their clients to own bonds a lot earlier in their lifetime than when is really necessary. An investor will likely not get rich from only owning Treasury bonds.

So for investors under 35 who own a bunch of bonds with the idea that they will slowly make money, Cramer thinks they are being too cautious.

Even in a 401(k) or an Individual Retirement Account, Cramer recommends that younger investors weigh their investments very heavily toward stocks, particularly because these types of accounts will allow investors to avoid capital gains or dividend taxes. That means gains can compound, tax-free, year after year.

However, as investors grow older, owning Treasury bonds becomes absolutely essential because bonds are simply safer. So, once investors have used the stock market to make themselves financially independent, they should put more money into U.S. Treasuries for protection.

How much of a retirement portfolio should be kept in bonds versus stocks? Cramer broke it down by age:

• 20s: None
• 30s: 10 percent of your retirement fund; 20 percent if you are conservative
• 40s: 20 to 30 percent bonds
• 50s: 30 to 40 percent
• 60s: 40 to 50 percent
• Post-retirement: Increase bond exposure to 60 to 70 percent

“You’re going to be living off your investments for the rest of your life, so some part of your portfolio should always be trying to create more wealth in case you live longer than you expect and need more money to support yourself,” Cramer said.

So, for younger investors, Cramer says putting money into bonds is a “fool’s game.” But as one grows older, that bond exposure should grow. This will ensure that the wealth generated from stocks is protected against the volatility of the stock market.

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