Thanks to the growing menu of ETFs, investors can slice and dice the market in many ways, building, for instance, a fine-tuned portfolio with dozens of index-tracking ETFs that offer exposure to all manner of stocks, bonds, commodities and real estate equities. The disadvantages of such a portfolio include complexity and potentially high trading costs, according to Iachini of Charles Schwab.
Swedroe stresses that investors ought not put the cart before the horse when it comes to jumping on the ETF bandwagon. Their first order of business, he said, should be coming up with an investment plan based on individual risk tolerance and financial goals.
"The place to start is: 'What should my portfolio look like?'" Swedroe said. "How much do you want in stocks vs. bonds, domestic vs. international, large-cap vs. small-cap equities" and so forth, he added.
Once you've come up with a written plan and an investment policy statement, which should include an asset-allocation strategy, "then, and only then, should you decide on using mutual funds vs. ETFs to get exposure to the asset classes" you desire, Swedroe said.
— By Anna Robaton, special to CNBC.com