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What is an ETF?

An Exchange-Traded Fund (aka ETF) is a bundle of different stocks, bonds, or other investments that trades like a stock on an exchange—shares can be bought and sold, and its value can fluctuate (both of these can happen throughout the day).

Be sure to take a look at an ETF’s prospectus for important info on the Fund’s investment objective (basically what the ETF is intending to accomplish), expenses, risks, and other info you should know about.

Some ETFs are designed to track an index, sector, commodity or other type of asset. Each ETF may offer a different thematic group of assets. For example:

  • Industry ETFs contain assets in a particular industry, such as technology or banking
  • Commodity ETFs invest in commodities like silver and gold
  • Bond ETFs can include government bonds, corporate bonds, or municipal bonds
  • Inverse ETFs attempt to earn gains by “shorting” stocks when they decline in value. “Shorting” is selling a stock with the intention of repurchasing it at a lower value.

While some ETFs are designed to track or mirror different indexes or sectors. it’s possible the value of some ETFs won’t always match up with what they’re intended to track. That’s called “Tracking Error Risk.”

As with all types of investments, there are pros and cons.

ETF Pros:

  • More access to many stocks across various industries
  • Support diversification

ETF Cons:

  • Some ETFs may have higher fees, especially if they’re actively managed

ETF Considerations: Some factors could be weighed as pros or cons depending on each unique ETF prospectus, including that:

  • Every ETF could have different tax implications, and its value can fluctuate with the values of all the securities the ETF includes.
  • The liquidity of each ETF may vary, as well.

While there are contemplations to have for each type of asset, all Bumped accounts are by default rewarded in a broad market ETF.

Users can additionally select up to four company stocks to be rewarded with on top of the ETF; simply go to “My Stock Picks” in the app to choose.

Want to earn free stock rewards when you do your everyday shopping? Sign up for Bumped on mobile or web to get started.

This article is intended for educational purposes. Bumped does not offer financial advisory services. For more information about ETFs and Bumped, visit our Support Article.

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