There is no final solution to the debate of active versus passive investing. Buying a passive ETF is especially suitable for beginners. While it’s low-cost and efficient enough for beginners, it’s not fool-proof. People who have no experience (or patience) with the inevitable bubbles and crashes of the stock market can still experience poor returns by buying high and selling after a market crash. Understanding the companies you own, while it takes more time and learning, can help you avoid that mistake by making clear the irrationality of the market price during market extremes.
Alt-A and Option-ARM mortgages are less of a threat than the sub-prime mortgages that precipitated the credit crisis. A greater number are held on the balance sheet of banks and will not require an immediate write-down. Further, interest rates are currently lower, so that rate resets may have little or no effect on borrowers. Further, many of the Option-ARMs may not reset for a further five years. The future for American banks is not rosy, but we have stepped back from the precipice and government spending is moving the economy back toward growth.
It takes the same qualities and characteristics to build wealth as it does to be healthy and happy. The important thing is to actually do more of what we know. Find something you value and work at it. Develop self-discipline and balance. Add new habits to your existing good habits. Work simultaneously to develop health, happiness and wealth, because wealth is meaningless without the other two.
Because everyone’s situation is unique, it’s not possible to be very specific when giving financial advice. There is no single list of “ten steps to becoming wealthy” that guarantees success. The action that you will need to take depends on:
1. Where you are now,
2. Where you want to be,
3. How you’re going to get there,
4. Taking action.
Making investment decisions would be premature before deciding what you’re trying to achieve. Your plan should be written, and should record your progress. It should also motivate you by giving you a vision of the future you want to create. Use simple actions to make progress, such as opening accounts, getting advice or setting up monthly automatic payments.
There are three aspects to becoming wealthy: how much you spend, what you spend it on and how you think about your spending. You don’t need to know more, but to do more of what you already know. If you truly want to become wealthy, you will spend less than you earn and save the difference. Then, once you have developed a habit of saving, you will make your money productive by investing it wisely. As your wealth increases, you will develop an independent assessment of your status, not by comparing yourself to your neighbors who have more, but by looking at your needs and comparing yourself to the majority of humanity who lives on much less.