Get the app
Get the app

Join millions of investors on Stash

Investing, simplified

Start today with as little as $5
Get the app
Teach Me

Now That’s What I Call an Investment! ETFs Explained

February 09, 2017

  • ETF stands for exchange-traded fund
  • An ETF is a basket of investments bundled into a fund
  • ETFs are traded on an exchange, such as the NYSE or NASDAQ
  • ETFs track an index
3 min read

While ETF doesn’t stand for Extra-Terrestrial Friends, we hope that after reading this article, this term will feel a little less alien. 

Much of what you need to know about these marketable securities is right there in the name, exchange-traded funds.

An exchange-traded fund is a basket of investments bundled into a fund that is traded on an exchange.

That fund owns the underlying assets (i.e. stocks and bonds) and usually tracks an index – or group of companies or securities with something in common.

What does this mean?

Do you remember those Now That’s What I Call Music! albums from the late 90s and early 2000s? In the United States, the first Now That’s What I Call Music! was released in 1998, and they are still churning them out in 2017! (Now That’s What I Call Music! 61, anyone?)

In case you are somehow unaware of this compilation album phenomenon, these albums bring together some of the most popular music from a given moment and put them on one handy CD. The very first Now That’s What I Call Music! released in the U.S. included such late-1998 hits as “MMMBop” by Hanson, “Zoot Suit Riot” by Cherry Poppin’ Daddies, “Say You’ll Be There” by the Spice Girls, and “Fly Away” by Lenny Kravitz. 

Exchange-traded funds and compilation albums…wait, what?

Now hold onto your hats…  ETFs are kind of like Now That’s What I Call Music! albums. And the comparison goes beyond them both having their origins in the late 20th century.

Here’s how:

In this analogy the Now That’s What I Call Music! album is the ETF, the genre of music it contains (pop) is like an index, and the individual songs are the underlying assets!

A compilation album is not the entire pop music industry, but it seeks to represent it on a small scale. It buys the rights to some of the songs that it needs to represent the industry or genre. Similar to how an ETF buys up stocks, bonds, or other assets and bundles them together to have them track a particular index, for instance, the S&P 500.

An exchange-traded fund is a basket of investments bundled into a fund that is traded on an exchange.

ETFs and indices

The S&P 500 is like the popular music of indices. It’s a list of 500 of the largest companies in the United States.

And just as Janet Jackson might be represented on several Now That’s What I Call Music! Albums (and she is), one company can be represented on multiple indices and in the variety of ETFs that track them. For instance, Microsoft is a top holding in Stash’s Blue Chips, Do the Right Thing, and American Innovators.

Investing, simplified

Start today with as little as $5

Get the App

So instead of running out and buying stocks, bonds, and other assets from each of your favorite companies and industries, you can buy an ETF which has exposure to each of the companies and/or industries that you’re interested in. You don’t have to buy all of Janet Jackson’s albums to hear some of her hits and benefit from their groove.

ETFs and the stock market

ETFs are traded publicly on an exchange (e.g., NYSE or NASDAQ). And they can be traded multiple times a day, which sets them apart from mutual funds.

They are also passively managed, which means that they track an index.  This often makes them attractive from a tax and fee perspective.

So who makes an ETF?

Technically, anyone can create (or launch) an ETF, provided you have the buying power and jump through all the regulatory hoops — and there are a lot of them, this is finance we are talking about. So, practically speaking, not anyone.

Launching an ETF requires buying the underlying assets that compose a particular index. And the reputation of the maker (technically called a ‘fund sponsor’) comes into play. This is similar to how you probably consider who is making a compilation album, and whether they have a track record of efficiently compiling the kind of music you’re looking for.

ETF shares are created and redeemed. This process is actually called Creation and Redemption (yes, that’s the real name).

It’s also important to note that ETFs aren’t sold directly by fund companies to investors, so you need a broker.

Good thing you have Stash! As a registered investment advisor, we connect you with a broker. One less step for you!

By Clare Edgerton

*The S&P 500® (“Index”) is an index of 500 stocks seen as a leading indicator of U.S. equities and a reflection of the performance of the large cap universe, made up of companies selected by economists. The S&P 500 (“Index”) is a product of S&P Dow Jones Indices LLC and/or its affiliates. For more information on any of S&P Dow Jones Indices LLC’s indices please visit

**This process is regulated by FINRA and the SEC (Securities and Exchange Commission).

Next for you
What’s an Index? Everything You Need to Know

Investment Profile

Bonds Worldwide

An International Bond ETF on Stash

Learn more
Explore more articlesChoose a topic to learn more about
politics Technology Retirement budgeting social media

Before investing in any exchange-traded fund, consider your investment objectives, risks, charges, and expenses.

This material has been distributed for informational and educational purposes only, represents an assessment of the market environment as of the date of publication, is subject to change without notice, and is not intended as investment, legal, accounting, or tax advice or opinion. Stash assumes no obligation to provide notifications of changes in any factors that could affect the information provided. This information should not be relied upon by the reader as research or investment advice regarding any issuer or security in particular. The strategies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. There is no guarantee that any strategies discussed will be effective.

Furthermore, the information presented does not take into consideration commissions, tax implications, or other transactional costs, which may significantly affect the economic consequences of a given strategy or investment decision. This information is not intended as a recommendation to invest in any particular asset class or strategy or as a promise of future performance. There is no guarantee that any investment strategy will work under all market conditions or is suitable for all investors. Each investor should evaluate their ability to invest long term, especially during periods of downturn in the market. Investors should not substitute these materials for professional services, and should seek advice from an independent advisor before acting on any information presented. Before investing, please carefully consider your willingness to take on risk and your financial ability to afford investment losses when deciding how much individual security exposure to have in your investment portfolio.

Past performance does not guarantee future results. There is a potential for loss as well as gain in investing. Stash does not represent in any manner that the circumstances described herein will result in any particular outcome. While the data and analysis Stash uses from third party sources is believed to be reliable, Stash does not guarantee the accuracy of such information. Nothing in this article should be considered as a solicitation or offer, or recommendation, to buy or sell any particular security or investment product or to engage in any investment strategy. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. Stash does not provide personalized financial planning to investors, such as estate, tax, or retirement planning. Investment advisory services are only provided to investors who become Stash Clients pursuant to a written Advisory Agreement. For more information please visit