SPY vs. VOO: Which ETF is Best?
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Summary:
Both SPY and VOO are exchange-traded funds (ETFs) and track the same index. They seek to mimic the returns of the S&P 500 stock market index (also known as the Standard & Poor’s 500), which follows the largest companies in the U.S. They have also both averaged close to 15% in annual returns in the last 10-plus years.
Finding an effective investment strategy is one of the many paths to financial independence — a goal many people share. Perhaps you are saving for a comfortable retirement in your 60s, or maybe you plan to be independently wealthy before the age of 35.
There’s even an acronym to describe investors with this goal in mind—FIRE: Financial Independence, Retire Early. Basically, it’s a movement of people focused on living frugally while saving and investing aggressively enough to retire much earlier than traditional life paths allow for.
Keeping your financial goals in line includes making smart decisions with your investment dollars, such as choosing the best exchange-traded fund (ETF) to add to your portfolio. SPY and VOO are two such options. In this article, we’ll look at both funds to see which is a better investment choice.
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S&P 500 index
The S&P 500 index is comprised of stocks from the 500 largest companies in the U.S. It includes household brands, such as Apple, Microsoft, Amazon, Tesla, and Google (Alphabet, Inc.).
The index tracks the performance of stock prices, which helps provide investors and financial advisors with a picture of where the market is now and (hopefully) where it’s headed. The S&P 500 is considered one of the best benchmarks for not only the health of the stock market but also the overall strength of the economy.
An ETF that tracks the S&P 500 is a portfolio of assets, including the same companies as the S&P 500 stocks, hoping to mimic the performance of the index. This means if the S&P goes up, the ETF should rise as well, and vice versa.
Pro Tip
Keep in mind that ETFs trade all day long just like individual stocks, unlike mutual funds that only trade once a day at the close of business. This means the price of those shares constantly fluctuates.
SPY vs. VOO
As stated previously, SPY (SPDR S&P 500 ETF Trust) and VOO (Vanguard’s S&P 500 ETF) are both exchange-traded funds that track the same index — the S&P 500. SPY was the first ETF, originated in 1993 by State Street Global Advisors, and historically has been a steady performer and favorite for investors of all kinds.
VOO, which was created in 2010 by the Vanguard Group, is also very popular with investors. Both ETFs have similar holdings with nearly the same weights as well. The table below summarizes the key differentiators between the two ETFs as of April 2022.
| Feature | SPY | VOO |
|---|---|---|
| Type of Security | ETF | ETF |
| Composition | Large blend | Large blend |
| Index | S&P 500 | S&P 500 |
| Net Assets | $374.89 billion | $841.68 billion |
| Expense Ratio | 0.03% | 0.09% |
| Management Style | Passive | Passive |
| Dividend Yield | 1.34% | 1.26% |
| 10-Year Return | 14.53% | 14.61% |
Differences between SPY and VOO
At a quick glance, the ETFs are so similar that the average investor might not even be aware of the discrepancies. For example, both ETFs have pretty much the same holdings, with similar weights to each as well.
| SPY | VOO | ||
|---|---|---|---|
| Holdings | Weight | Holdings | Weight |
| Apple Inc (AAPL) | 7.05% | Apple Inc (AAPL) | 7.04% |
| Microsoft Corp (MSFT) | 6.02% | Microsoft Corp (MSFT) | 6.01% |
| Amazon.com Inc (AMZN) | 3.72% | Amazon.com Inc (AMZN) | 3.71% |
| Tesla Inc (TSLA) | 2.35% | Tesla Inc (TSLA) | 2.35% |
| Alphabet Inc A (GOOGL) | 2.18% | Alphabet Inc A (GOOGL) | 2.17% |
| Alphabet Inc Class C (GOOG) | 2.02% | Alphabet Inc Class C (GOOG) | 2.02% |
| NVIDIA Corp (NVDA) | 1.78% | NVIDIA Corp (NVDA) | 1.77% |
| Berkshire Hathaway Inc Class B (BRK/B) | 1.68% | Berkshire Hathaway Inc Class B (BRK/B) | 1.68% |
| Meta Platforms Inc Class A (FB) | 1.34% | Meta Platforms Inc Class A (FB) | 1.34% |
| UnitedHealth Group Inc (UNH) | 1.25% | UnitedHealth Group Inc (UNH) | 1.25% |
But there are a few key differences when you look at SPY vs. VOO, aside from the companies who offer them.
Different share prices
While this may not be a huge concern in the grand scheme of things, the share prices of SPY are higher than that of VOO. For example, at the close of business on April 28, 2022, SPY was at $417.20 and VOO was $384.37. The lower share costs of VOO may be more attractive to some investors.
However, most brokerage firms now allow buyers to purchase fractional shares, which provide investors of all income levels the opportunity to invest in the big ETFs.
Varying expense ratio
Perhaps more importantly, the expense ratios (cost to own the security) vary, which adds to the price of the asset. The expense ratio for SPY is 0.09%, so it’s slightly more expensive to own SPY than VOO, which has a lower expense ratio of 0.03%.
That may seem like a fairly inconsequential difference; after all, it’s pennies on the dollar. However, depending on how much capital you invest, that could amount to a large sum of money. Plus, the less money you pay in fees, the more money you have in your stock portfolio. Whether you are investing large or small sums of money, seeking the lowest fees can really have an impact.
Longer-term performance
Since they track the same index, VOO and SPY have a very similar return on investment. However, VOO has slightly outperformed SPY over the last 10-plus years (14.60% vs. 14.53). The graph below illustrates the hypothetical growth of $10K if you had invested them in 2012 for 10 years. As you can see, it’s hard to set the two ETFs apart. The main reason VOO has a slightly higher ROI is that Vanguard charges lower fees.
So which is better: SPY vs. VOO?
These are two very similar ETFs. VOO is probably the best investment because it has a lower expense ratio which will usually mean a higher return.
If you’re torn between the two ETFs, don’t sweat it too much. These are two very similar ETFs, so it’s a close call. They both track the S&P 500 index, so if you consider the expense ratios, trading costs, share prices, and overall performance of the two funds, you’ll find that VOO has a marginal edge over SPY because of lower fees and its historical performance.
If you’re new at this game, these two ETFs are a pretty safe bet for long-term investment. When you invest in the S&P 500 you are basically betting on the U.S. economy. However, if in doubt, it’s always a good idea to consult with a financial advisor before investing your hard-earned money.
FAQs
Should I invest in both VOO and SPY?
It’s not a terrible idea to have both SPY and VOO in your portfolio of assets. They have both gained a total average annual return of about 15% apiece, making either or both a solid choice for long-term investors. However, VOO has lower fees, so there is an argument for only investing in the less expensive ETF if you want one that tracks the S&P 500.
Why is SPY so popular?
SPY is the largest and most liquid of ETFs, making it a very popular choice with big financial institutions and investors of all kinds. When you consider that the average daily volume for SPY is around $22.2 billion worth of shares traded, as compared to $6.8 billion for VOO, it’s easy to see why investors would perceive it as a safer choice.
When big block trades happen with some of the smaller ETFs, the share price can fluctuate a lot more — something that’s much less likely to happen with SPY. SPY is also the oldest of the index funds and thus has a long proven track record, making it at least appear to be the safer bet. Plus, the name of the ETF itself, SPY, invokes the S&P 500, giving it that much more credibility to investors.
What about IVV vs. SPY vs. VOO?
iShares Core S&P 500 ETF (IVV) is one of the top four large-cap funds, along with SPY and VOO. It’s also a high-performance index fund that’s outpaced both VOO or SPY from 2010 to now. IVV averages over 15% average annual returns, with dividends reinvested.
It also has a lower expense ratio, like VOO, at 0.03%. As mentioned previously, that may not make much of a difference with smaller investments, but the expense ratio can really add up with bigger dollar amounts. Of the three ETFs, IVV appears to be a bit better of a buy right now. Of course, the past performance of any asset is no guarantee of future growth.
What about VTI?
The Vanguard Total Stock Market ETF (VTI), another of the biggest ETFs, is a bit of a different animal than the other index funds. It tracks the CRSP U.S. Total Market Index instead of the S&P 500.
This index is a market capitalization-weighted index that measures the entire investable U.S. equities market, with 3,900 stocks included in the index. From its inception in 2001 to now, its earnings have been more modest than the S&P ETFs.
However, when you look at its three-year growth, it’s right in line with the other ETFs discussed here. VTI is a respectable performer and a bit more expansive in its coverage, making it a worthwhile option in your investment portfolio.
Key Takeaways
- SPY and VOO are both ETFs that track the S&P 500.
- Overall, VOO has a slight advantage when compared to SPY, but their total returns are very similar.
- Keep in mind the expense ratio and trading costs when figuring out the overall cost of your investment.
- SPY, VOO, IVV, and VTI are four of the biggest ETFs in the world, with SPY being the largest and most popular.
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