I think the key here is moderation. A home can be a great tool in building wealth, but it can be a tremendous drain on your finances if you buy more house than you can afford. The problem is that too many people let the lender decide how much they can afford. The lender is not interested in their financial well being, it is interested in its own. You need to think for yourself on how much you can afford and stick to that budget when buying. You must also take into account that the larger the house the more you will pay for other bills like utilities and property taxes.

One thing that is not mentioned often is that buying a home is a forced savings plan. Since some of your payments go to paying down the principal you are forced to build equity (which could be considered a savings account). If you buy a home when you are young and don’t do cash out refinancing you will have been forced over the lifetime of your loan to save whatever the current value of your home may be. When you look at all the people who go into retirement with no liquid assets because they spend everything they make, the ones that own homes are way better off than the ones that have rented all there life and not saved.

I don’t disagree that real estate should be considered when diversifying. And I think buying a home (if you can afford it) is great if you are doing it because you want a home. Buying it primarily as an investment is putting an extremely large amount of eggs in a very large basket, and incurs more risk than people want to admit. And I find more honesty in the used car market and politicians than I do in the real estate market. I also find that the biggest liars are often the homeowners and folks applying for mortgages. When Gareth or anyone else is just getting started, it’s a good idea to save and invest awhile first, studying the market, and then invest in real estate. If that means missing this party, so be it. There will be other parties later in various sectors. There always are. Meanwhile he doesn’t have to get locked into a riskier debt situation.

That isn’t to say all debt is bad, and it’s also not to say that you should never buy real estate. It is to say, “Slow down, study your choices, and be sensible.” And THAT isn’t to say never take any big risks.

I have seen many folks religiously believe in the magic of real estate, only to get burned. Having lost money on a hot residential property, I learned the hard way.

Meanwhile, the companies in which I own shares own real estate.

As for getting rich off dividends, no, in the short term you can’t get rich off dividends. In the long run might be a different story. And in the shorter term you can get good results buying underpriced shares paying high dividends in the anticipation of the share price eventually rising. And you don’t have to mow its lawn, keep up with repairs, buy insurance, pay for the appraisal, etc., etc., etc, and all the other “money pit” expenses.

By the way, if you know what you are doing, are sensible, and can afford the risk, real estate is not the only investment which can be leveraged.

As an example what will happen to all dividend paying stocks when the government raises the taxes on the dividend (an event that very well might occur in the US in the next year or so). While this event would cause all dividend paying stocks to go down, it would not affect real-estate except maybe to make it go up as a lot of the money leaving the stock market may very well head to the real-estate market. Large capital flows out of one asset class into another don’t affect you if you have equal stakes in both. That is true diversification.

I agree with you 100% that buy and hold is the best strategy, and that if you are not willing to do your homework that Index Mutual Funds (OR ETF’s) are the best option. The only bad thing about buy and hold is that it is often used as an excuse to not do what is necessary when investing, which is research your holdings constantly and sell your losers. Jim Cramer, who is often wrongly accused of just being a trader and not having any info for long term investors, did a show segment recently titled “Buy and Homework” that I totally agreed with. All buy and hold investors should watch this segment. He basically says that you must be willing to put in at least one hour a week for every stock you own, and sell if real problems develop in the business. Some red flags to look for are:

•Accounting Irregularities – This is the big one, sell first ask questions later. Think Enron.
•New Major Competition – An example of this would be Garmin (GRMN) and Nokea. GRMN was selling at around 120 when Nokia bought Navtech basically announcing that it was entering the GPS Navigation business around 6 Months ago. Today GRMN is selling for 43. I had bought GRMN a while back with the intention of holding for a long time, but sold immediately when I read this news.
•Price Wars – If a company you own gets involved in a price war with a worthy competitor in a key business segment it may be time to sell. An Example of this would be Intel and AMD. Intel stock had a phenomenal rise until AMD came along; it hasn’t done much since except trend down. Google “Intel AMD price war” if you want a history. The earliest article I could find was may 30 2002. The best way to get a visual picture of what a price war will do to a stock is to go to the interactive charting on yahoo and do a chart comparing INTC to the S&P with the MAX time frame. This will show INTC beating the S&P with a 6000% gain since 1986. Now run the chart from MAY 2002 (The first mention of a Price war with AMD) until today. The picture is quite different with Intel showing an 18% loss against a 35% gain for the S&P.
You may have other metrics that you use including discounted cash flow models, Sales or earnings growth rates, profit margins, or dividends. The point is you watch your investments and have the discipline to admit mistakes when you are wrong. How Many times have you heard “it’s not a loss unless you sell?” This is just pure B.S. because the whole time your money is in a dog stock you are losing the opportunity to be making money elsewhere. Time is money and as you alluded to in thought #14 time is not replaceable. That doesn’t mean you rush out and sell a stock just because the price went down. Dips in price are great buying opportunities if you have done your homework and are confident in the company’s long term prospects.

Shawn I do not have a blog but I am active on the Motley Fool Discussion boards and Have a MYCAPS portfolio under the name tomtat1. You can check my ended picks on GRMN if you doubt what I was saying above. A MYCAPS portfolio at motleyfool.com is a great way to judge whether you can beat the market or not without putting your hard earned money at risk. It keeps up with your score based on relative performance to the S&P 500 and rates you against all the other investors playing. This site is also great for getting investment ideas. You will have to sign up to get in but it is free. Just be prepared to get bombarded with ads for their news letters as this is how they make their money.