Selection

• Many of the most widely known ETFs, like those trading under ticker symbols SPY and VTI, track the performance of broad stock market indexes, but today there are ETFs that track sectors of the market, individual country markets and even precious metals. If you can find an ETF that provides the diversification and market exposure you need, using that ETF as a substitute for a mutual fund makes a lot of sense. The ability to buy and sell ETFs in real time throughout the trading day can be a big plus, especially when you invest in fast moving and volatile sectors.
  
  

Costs

• The costs associated with exchange traded funds that track the market indexes are generally comparable to the cost of index mutual funds. Those comparable costs can make ETFs a good replacement for index funds, and for other types of investments as well. If you do plan to use an ETF as a substitute for a non-index mutual fund, it is a good idea to check the costs of both the fund and the ETF and use that information to make a decision.
  
  

Real Time Trading

• One of the chief benefits of ETF investing is the ability to get in and out of the investment at a price you set, rather than waiting for the mutual fund to be priced at the end of the trading day. Investing in exchange traded funds gives you a greater level of control than investing in mutual funds, making these funds an excellent choice for active investors.
  
  

Consistent Investing

• One potential downside of investing in exchange traded funds is that it can be more difficult, and more expensive, to dollar cost average into these funds. With a mutual fund, you can set up an automatic monthly transfer from your bank account and use it to buy shares of the fund. You can also request that any accumulated dividends and capital gains be reinvested and used to buy more shares. Setting this up with an ETF is a more cumbersome process. Fortunately, some brokerage firms now provide commission-free trades for ETFs, so setting up a dollar cost averaging strategy is easier than it used to be.