Less Volatility -
Because of the increased diversity, ETFs tend to be less volatile than stocks. For example, despite the fact that AT&T is a fairly stable stock, the following graphs show that general ETFs (in this case, dividend ETFs) tend to be less volatile.
It can take a great deal of time to study and monitor individual stocks, especially if you have a diversified portfolio of 12 or more stocks as mentioned above.
Attachment to Stocks -
There's a tendency to grow attached to specific stocks, especially ones that have done well in the past. It is often easier to sell an index ETF when necessary.
Advantages of ETFs versus Stocks in a Taxable Account
Spin-offs and cash-in-lieu -
Spinoffs and the resulting cash-in-lieu can complicate taxes. As can be seen here, on 9/30/1996, AT&T shareholders received .32408 shares of Lucent for each share of AT&T held. The original AT&T cost basis was allocated 72.01% to AT&T and 27.99% to Lucent. As is usual, fractional shares were paid as cash-in-lieu. For tax purposes, the cash-in-lieu is treated as the sale of the fractional share and the new cost bases are used when selling AT&T and/or Lucent shares (including fractional shares).
Disadvantages of ETFs versus Stocks
The commission paid to the broker might be the same, but there is no expense ratio for a stock. However, expense ratios have dropped sharply in recent years. For example, this link shows a number of domestic equity ETFs with expense ratios at or below one tenth of one percent.
Dividend Yields -
There are dividend-paying ETFs, but the yields may not be as high as owning a high-yielding stock or group of stocks. The risks associated with owning ETFs are usually lower, but if an investor can take on the risk, then the dividend yields can be much higher.
May Sell Above Its NAV (net asset value) -
At any given time, the spread on an ETF may be high, and the market price of shares may not correspond to the intraday value of the underlying securities. Make sure you know what an ETF’s current intraday value is as well as the market price of the shares before you buy.