Exchange Traded Funds (ETFs)

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An ETF, or Exchange Traded Fund, is a collection of securities that tracks various assets, indexes, or industries.


For example, an ETF might track the S&P 500, a collection of the 500 largest U.S companies on the stock market. When you invest in this ETF, you are actually investing in all 500 of these companies. Some of your money would be invested in Apple, some in Nike, Amazon, Nvidia, etc… Think of an ETF as a bucket that contains hundreds of different stocks. When you invest in the bucket, you are really investing in all of those stocks.


On Bumper, you can invest in 13 different ETFs. These ETFs track the entire U.S. stock market, the global stock market, large U.S. companies, small U.S. companies, etc… 


ETFs may be a good way to diversify your portfolio. Instead of putting all your money in one company, you may be able to gain access to many stocks across various industries. However, there are specific ETFs that focus on a single industry, like tech or healthcare. These ETFs limit a portfolio's diversification, but we can talk more about that in a later Bite.


If you come across an ETF and want to know what the ETF tracks, you can look up its prospectus. A prospectus is a detailed summary of an ETF’s investment objectives, holdings, costs, and other information that can aid an investor. 


ETFs are issued and managed by ETF issuers. To pay for an ETF issuer's operating expenses, ETFs require investors to pay an expense ratio as a fee for management. ETFs overall seem to have lower expense ratios and fewer broker commissions.

After considering an ETF's expense ratio, it is also important to consider the ETF's liquidity. Liquidity means how fast it can be converted into cash when you want to sell. If you choose an ETF with low liquidity, it might hinder or delay you from cashing out. Often ETFs with high liquidity contain companies that are more well known.

Besides for industries, ETFs can be categorized into two types: actively managed and passively managed. Actively managed funds are as they sound. They are more actively managed by fund managers to achieve higher profits. Passive funds are the opposite. They often employ a buy and hold strategy, but frequently come with lower fees than an actively traded ETF.


So far, you’ve learned about investing, risk vs reward, stocks and shares, and now ETFs. Up next, we’ll discuss how the stock market works.

Source: Investopedia | ETFs

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Disclosure: This is not an offer, solicitation of an offer, or advice to buy or sell securities, or open a brokerage account in any jurisdiction where Alpaca is not registered (Alpaca is registered only in the United States). All investments are subject to investment risks, including possible loss of the principal amount invested.
Disclosure: Alpaca does not make recommendations with regard to fractional share trading, whether to use fractional shares at all, or whether to invest in any specific security. A security's eligibility on the list of fractional shares available for trading is not an endorsement of any of the securities, nor is it intended to convey that such stocks have low risk. Fractional share transactions are executed either on principal or riskless principal basis, and can only be bought or sold with market orders during market orders.
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This is not an offer, solicitation of an offer, or advice to buy or sell securities, or open a brokerage account in any jurisdiction where Alpaca is not registered (Alpaca is registered only in the United States).

View Alpaca's disclosures at: https://alpaca.markets/disclosures

Alpaca does not make recommendations with regard to fractional share trading, whether to use fractional shares at all, or whether to invest in any specific security. A security’s eligibility on the list of fractional shares available for trading is not an endorsement of any of the securities, nor is it intended to convey that such stocks have low risk. Fractional share transactions are executed either on a principal or riskless principal basis, and can only be bought or sold with market orders during normal market hours.

The content on this website is for illustrative and informational purposes only and any historical returns, expected returns or projections are hypothetical in nature. Investing involves risk & investments may lose value, including the loss of principal. Past performance does not guarantee future returns or results. Before investing, carefully consider your investment objectives, time horizon, and overall risk tolerance as well as the information stated in the product offering prospectuses.