Convenience

• Buying exchange traded funds is convenient and easy. If you have an account with an online discount broker, you can use that account to buy and sell ETF shares any time you want. Exchange traded funds also give you a convenient way to participate in many different segments of the stock, bond and commodities markets. For instance, buying shares of the ETF trading under ticker symbol SPY gives you exposure to every stock in the Standard and Poor's 500 index, while buying the GLD ETF allows you to profit when the price of gold rises.
  
  

Limit Orders

• When you buy or sell a mutual fund, you do so at the next closing price of that fund. But when you invest in an exchange traded fund, you can choose the price at which you get in or out. When you place a limit order, you specify the price at which you want to buy or sell your ETF shares. The trade is only executed if the ETF shares trade at or below that price for a buy transaction and at or above that price for a sell order. This gives you control over your purchases and sales, allowing you to lock in a gain or get in at what you believe will be the bottom of a bear market.
  
  

Commission Costs

• When you buy an index mutual fund, you can reinvest your dividends and capital gains in additional shares at no additional cost. But when you buy exchange traded funds, you can face a new brokerage commission each time you want to buy additional shares. That can increase the overall costs of your portfolio and make it difficult to track your cost basis accurately as well. You need to add each brokerage commission to your cost basis, so keeping copies of all your purchase confirmations is essential.
  
  

Temptation

• The ease of trading ETFs can make it tempting to try to time the market, or to day trade in those securities. In the long run, that can have a corrosive impact on your portfolio, due not only to the high brokerage commissions but also the difficulty of accurately predicting the highs and lows of the stock market in the short term. If you do plan to include exchange traded funds in your portfolio, be aware of this temptation and fight it to the best of your ability.