The S&P 500 is one of the primary U.S. stock market indexes and is a favored investment by both retail investors and financial advisors alike. In fact, no less than Warren Buffett, the oft-quoted billionaire CEO of Berkshire Hathaway, has repeatedly suggested that the best investment for most individuals is simply a low-cost index fund.
Key Differences Between VOO and SPY
SPY and VOO are both S&P 500 index ETFs, so they actually have more similarities than differences. They’re both large-cap funds that track the performance of the S&P 500 index. This means they both:
- Have the same goals
- Invest in the same types of securities
- Use a passive management style
The funds’ holdings are also quite similar in terms of the specific stocks they invest in and the industries those stocks represent.
That said, the funds do have some differences. There are variations in holdings and weightings. This can result in small variations in performance. Here’s a look at the primary differences between VOO and SPY.
Issuer
VOO is offered by Vanguard, a company well-known for its low-cost investing philosophy. SPY is managed by State Street Global Advisors, one of the oldest and largest ETF providers.
Expense Ratios
- VOO: 0.03%
- SPY: 0.0945%
That means for every $10,000 invested, VOO costs about $3 per year, while SPY costs closer to $9.45. It’s not a huge difference, but for cost-conscious investors–especially those with large balances–it can add up over time.
Liquidity
SPY has been around since 1993, making it the oldest U.S. ETF and one of the most actively traded. It boasts higher daily trading volumes compared to VOO, which makes it slightly more liquid and attractive for traders who want to move in and out quickly.
Here’s a simple comparison:
| Category | VOO (Vanguard) | SPY (State Street) |
|---|---|---|
| Expense Ratio | 0.03% | 0.0945% |
| Liquidity | Moderate | Very High |
| Issuer | Vanguard | State Street |
Composition: How VOO and SPY Track the S&P 500
VOO Composition
Vanguard’s VOO is designed to mirror the S&P 500 as closely as possible. It’s a traditional index fund that buys and holds all 500 companies in the index according to their market cap weights.
SPY Composition
SPY also tracks the S&P 500, but it’s structured as a Unit Investment Trust (UIT). That means it has some limitations–like it can’t reinvest dividends immediately or engage in securities lending, both of which can slightly impact returns.
Here’s what sets them apart:
- VOO allows dividend reinvestment directly into the fund.
- SPY holds dividends in cash until they’re paid out, which can create a minor cash drag.
- VOO uses securities lending to help offset costs; SPY does not.
Performance Comparison
When it comes to returns, VOO and SPY are nearly identical over the long term. They both closely track the S&P 500, though VOO’s lower fees can give it a tiny edge.
If you look at historical returns, the differences are minimal:
- 1-year: Nearly the same
- 3-year: VOO slightly ahead, mostly due to its lower cost
- 5-year: Again, VOO with a slight advantage
Here’s a simple chart (hypothetical example):
| Time Period | VOO Return | SPY Return |
|---|---|---|
| 1 Year | 11.2% | 11.1% |
| 3 Years | 44.5% | 44.2% |
| 5 Years | 90.3% | 89.8% |
Yield and Dividends
Both VOO and SPY pay dividends, but there are a few differences in how they handle them.
- Dividend Yield: VOO and SPY typically yield around 1.5% (this can vary).
- Distribution Frequency: SPY pays out dividends quarterly; VOO does the same.
- Reinvestment: VOO’s structure allows for reinvestment within the fund itself, while SPY distributes dividends to shareholders, who then need to reinvest manually if they choose.
Why yield matters:
- For income-focused investors, steady dividend payments can provide a predictable stream of income.
- VOO’s reinvestment capabilities make it slightly more efficient for long-term compounding.
Net Assets and Market Price
- Net Assets: SPY has over $400 billion in assets and is the largest ETF in the world, while VOO isn’t far behind with around $300 billion.
- Market Price: SPY trades at a higher share price (typically over $400 per share), while VOO trades for less (generally around $350). This doesn’t affect your returns but can influence how you invest. For example, fractional shares are more easily accessible with VOO on some platforms.
Volume and Liquidity
Liquidity is a key factor if you’re actively trading these ETFs.
- SPY consistently has higher daily trading volume, making it a favorite among traders who need fast execution and tight spreads.
- VOO has plenty of liquidity for long-term investors, but its spreads can be slightly wider during volatile periods.
Considerations:
- Active traders might prefer SPY because of its superior liquidity.
- Long-term investors may choose VOO for its lower costs and efficient structure.
Which ETF is the Better Investment?
Both VOO and SPY are solid choices if you want broad exposure to the U.S. stock market through the S&P 500. They’re nearly identical in terms of performance, but your personal goals and investing style can make one a better fit than the other.
Choose VOO if:
- You’re cost-conscious and want the lowest possible fees.
- You prefer Vanguard’s investor-friendly reputation and structure.
Choose SPY if:
- You prioritize liquidity and want the flexibility to trade frequently.
- You’re working with a platform that doesn’t offer fractional shares and prefer higher-priced shares.
Jacob Wade contributed to the reporting of this article.