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.
ETFs and Bumped
In the Bumped app’s Stock Marketplace, you’ll receive rewards in fractional shares of stock and ETF’s. Currently, you will be rewarded in a Vanguard Total Stock Market ETF, which has the ticker symbol VTI. You can find out more about this Fund in its prospectus.
ETFs often have expenses built-in
While Bumped doesn’t charge you fees, ETFs have operating expenses built-in. Expense amounts vary by the ETF and they cover the cost of operating the Fund. That includes maintenance things like administrative, compliance, marketing, management, and the like. An ETF’s expenses will be listed out in its prospectus.
ETF expenses aren’t taken out of individual accounts. Instead, they’re deducted from a Fund’s value (usually daily). In fact, you may not even notice them (but they’re still there and still important to know about).
Some risk-related stuff to know about ETFs
Because ETFs are bought and sold similarly to stock, they share some of the same risks, but they also have some unique risks. Some risks to know about:
- ETFs might have different tax implications than owning stock directly, though it depends on the Fund. While we don’t provide tax advice, it’s always a good idea to check the Fund’s prospectus for any tax-related info and chat with a tax professional if you have more questions.
- An ETF’s value can fluctuate with the values of all the securities it includes. But because ETFs trade like stocks and market sentiment (aka the attitude investors have towards a security or the financial landscape) can also play a role, it’s possible an ETF’s value may actually be lower than the overall value of all of its securities.
- Some ETFs are designed to track or mirror different indexes or sectors. It’s possible the value won’t always match up with what they’re intended to track. That’s called “Tracking Error Risk.”
Is an ETF the same thing as a mutual fund?
Mutual funds, like ETFs, are also bundles of stock, bonds, or investments. But that’s basically where the similarities end. A couple of key differences:
- ETF shares can be bought and sold on national stock exchanges throughout the day and mutual funds can only be bought and sold after the stock market is closed for the day.
- An ETF’s value might be higher or lower than the total value of all of its included investments (also called the Net Asset Value or NAV). A mutual fund’s value is its NAV.
- Because ETFs trade like stocks, there can be fees or commissions to buy or sell ETFs. Bumped doesn’t charge any fees to sell ETFs. However, if you ever choose to transfer your ETF shares to another firm, they might.
Bumped doesn’t currently provide the option of mutual funds as a reward.