VOO vs. SPY: Which S&P 500 ETF Offers Better Investment?

When considering which S&P 500 ETF provides better investment options, two funds often come to mind: the Vanguard S&P 500 ETF (VOO) and the SPDR S&P 500 ETF (SPY). Both funds offer exposure to the S&P 500 index, exhibit high liquidity, and feature low fees. However, small differences can lead to significant outcomes over time.

Key Comparisons: VOO vs. SPY

Both VOO and SPY invest heavily in technology stocks. This includes well-known companies like Apple, Microsoft, Amazon, Alphabet, and Tesla. Despite their similar focus, their structures and fee structures distinguish them in the market.

Cost Analysis

• The Vanguard S&P 500 ETF (VOO) has an expense ratio of 0.03%.
• The SPDR S&P 500 ETF (SPY) carries a higher expense ratio of 0.0945%.

While this difference may seem minor, it can have a significant impact over time, especially for long-term investors. Lower fees generally mean greater returns, as more money stays in the investor’s hands.

Liquidity Considerations

SPY typically has a notable liquidity advantage. It averages nine times the dollar trading volume compared to VOO, which may lead to lower trading spreads. For frequent traders, this advantage could make SPY a more appealing choice.

Investment Structure Differences

• VOO is structured as a traditional open-ended ETF.
• SPY operates as a unit investment trust (UIT).

This structural distinction can affect performance. UITs like SPY often hold cash reserves and cannot immediately reinvest dividends, which may result in a slight performance drag compared to VOO.

Conclusion: Which ETF to Choose?

For most long-term investors, the Vanguard S&P 500 ETF (VOO) is likely the better option due to its lower fees and equal exposure to the S&P 500 index. Even though SPY’s liquidity may be advantageous for active traders, the cost efficiency of VOO makes it a compelling choice for those focused on maximizing returns over time.