There is modest debate but little doubt that cyclical recovery is at hand. Recent earnings reports confirm the same.

Thanks in no small part to the efforts of the Federal Reserve, the U.S. Treasury, and similar institutions around the globe, it is once again safe to invest. Investors don’t need much in the way of high level customized picks to profit over the next year or so. Owning broad based baskets of stocks such as iShares S&P 500 Index Fund. or a similarly broad iShares Investment Grade Corporate Bond Fund should get the job done. I’d avoid longer term U.S. Treasury based ETFs like TLT (I Shares 20+ Year Treasury Bond).

A secular recovery that restores capitalism to its proper role as the moral driver of the betterment of the human condition is what is needed next.

There is no doubt that greater reform is needed to ensure a strong secular recovery, but the most needed reforms cannot be legislated. There is mass haggling around new rules to ensure profit maximizing individuals can’t destroy our system, but people making immoral decisions don’t always mind the rules. President George W. Bush said in the midst of the crisis “I’ve abandoned free-market principles to save the free-market system.” With great respect, I believe the principles of a free market system have been slowly abandoned in this country for nearly 50 years.

Our system and way of life was brought to its knees not by a lack of rules, but by a lapse of character. Individual people made conscious decisions to sacrifice long-term safety and stability of their companies and therefore the nation by focusing on the formula of their individual enrichment. “Grow the balance sheet ” was the mantra of the time. Large bonuses and option grants reinforced morally bankrupt behavior.

In the world of credit, there was scant truth in the collateralized debt world, and even less moral justification for lending more than a property was worth to a borrower who could never repay.

For capitalism to fulfill its destiny of continually improving the human condition on earth it requires and depends on certain fundamental pre-conditions which include truth, love, charity, fairness and justice. Capitalism depends on the individual making both self interested and moral decisions.

Critics would say capitalism failed in 2008, I would disagree. Individuals did enrich themselves while placing their companies and our nation at risk but this is not capitalism and these people did not operate under the principles of a capitalist order. Capitalism requires men and women to act in good faith providing value in voluntary exchange.

Secular recovery, if we are to have it, is in the hands of many. Parents and teachers must teach morality (truth and love) to children. Our nation’s business schools must elevate the importance of ethics (fairness and justice) training. Corporate boards must create incentive programs for executives that are more customer and shareholder friendly than today’s ridiculous systems.

The reforms with the greatest impact won’t come from Washington. Legislation may detour bad behavior and bad people, but morality in commerce comes from the individual voluntarily. When honor is more important than profit, profit will follow.

Herb Morgan is president and chief investment officer of Efficient Market Advisors, LLC , an ETF separate account manger serving financial advisers and their clients. His weekly podcast is available free on iTunes . Contact Herb via e-mail: herb@efficient-portfolios.com .