Here's Why I Tell Most of My Friends to Buy ETFs

If you want to grow wealth over time, investing is the way to go. But investing is also something you shouldn't do without putting thought into the process. If you simply buy stocks at random, you might end up choosing the wrong companies -- and regretting your decisions after the fact.

Many of my friends are interested in investing for their retirement, but they also don't want to do a lot of work in the process. And I get it. They're busy people who, frankly, aren't so in tune with the stock market. And they're also not that interested in it. So just as I'm someone who doesn't give a hoot about what the latest reality TV star is up to, so too do my friends not really care which tech companies are most poised for growth.

That's why the best investment advice I've given to my friends is to load their brokerage accounts with ETFs. And you may want to do the same.

How ETFs work

An ETF, or exchange-traded fund, is a fund you can buy and trade like regular shares of stock. But instead of buying shares of one specific stock, you're basically getting a bundle of stocks with a single investment.

There are also different types of ETFs you can buy. Bond ETFs, for example, focus on -- you guessed it -- bonds. Healthcare stock ETFs are loaded with -- wait for it -- healthcare stocks. And so forth.

The upside of buying ETFs is that you don't have to research many different companies. You simply need to look at the performance and setup of the ETF you're eyeing to see if it's a good fit for you.

An even better approach to ETFs

Sector-specific ETFs can help you gain exposure in your portfolio to different segments of the market you may not be invested in already. For example, if you don't own any healthcare stocks but are interested in doing so because healthcare is thought to be a pretty recession-proof industry, then adding shares of a healthcare ETF might be easier than researching different healthcare businesses.

But to make your life even easier, you could also put shares of a broad market ETF, like an S&P 500 ETF, into your portfolio. The S&P 500 index is generally considered to be an indication of how the stock market is doing as a whole. And that makes sense, since the index is made up of the 500 largest publicly traded companies.

Meanwhile, over the past 50 years, the S&P 500's average annual return has been 10%. So let's say you put $10,000 into an S&P 500 ETF. If you hold it for 30 years, at that point, your $10,000 might be worth almost $175,000, assuming that same return.

All told, ETFs can make investing a lot easier. And you know what? That's OK.

You might say that loading up on ETFs is taking an investing shortcut -- but it's an effective shortcut. So if it saves you time and stress while allowing you to meet your financial goals, what's the problem with that?