My Friend Calls Herself a Clueless Investor. Here's What I Told Her to Buy

A friend of mine (who I'll call Jane) is a wonderful human who works hard at her job and is constantly running around to take her kids to soccer, dance, and the myriad other activities they're enrolled in. She's also a smart, kind person who wouldn't hesitate to go out of her way for a friend in need.

But one thing my friend Jane is not good at is investing. In fact, if you were to ask her how the stock market works, she'd probably say something along the lines of "I dunno."

Not only does Jane really not know much about investing, but she's not particularly eager to learn. As she's told me, she's busy enough between a 40-hour-a-week job and a busy household. She just doesn't have the brain space to learn how to analyze stocks and choose the right ones.

That said, Jane wants to be able to retire eventually. And she wants to retire with a decent pile of money to her name. So she opened an IRA a few years ago and has been trying to fund it consistently ever since.

When she asked for my advice on how to invest her IRA, I told her that maintaining a diversified portfolio was important. And when she, in turn, looked at me like I had four heads, I told her not to worry, because I was about to recommend an investment that could easily set her up for success.

When ETFs come to the rescue

Since Jane admits that she's a clueless investor with no plans to get educated, I recommended that she load her portfolio with S&P 500 ETFs, or exchange-traded funds. By choosing these specific ETFs, Jane gets exposure to the broad stock market. Only she doesn't have to spend her time researching 500 different stocks individually, or even a few different companies.

Now I explained to Jane that there's technically no guarantee that her portfolio will perform well over time with this strategy. That said, over the past 50 years, the S&P 500 index has delivered an average annual return of 10% before inflation. This doesn't mean that every year has been a winning one for the index, but over time, it's performed well.

Meanwhile, if Jane invests $300 a month in S&P 500 index funds over the next 30 years, and her portfolio delivers an average annual 10% return, she'll end up with about $592,000. That's not too shabby for someone who really doesn't know a thing about buying stocks.

It's okay to take the easy way out

Analyzing stocks isn't something everyone wants to do. If you're looking to build wealth over time without having to do a ton of research, it's perfectly okay to fall back on broad market ETFs. The key is to put your money to work over many years so you can grow wealth gradually and set yourself up to retire without financial worries.

Of course, it's always a good thing to try to educate yourself on investing so you're equipped to make savvy decisions with your long-term savings. But if you just don't have the head space for getting deep into the nitty gritty, you don't have to feel ashamed in any way.