The S&P 500 (Standard & Poor’s 500 Index), which tracks the 500 largest publicly-traded companies in the U.S., is one of the most popular benchmarks used today. There are many exchange-traded funds (ETFs) available to invest in that track the S&P 500, which inevitably leads to debate about which one is the best investment.
In this article, we will compare two of the most popular S&P 500 ETFs on the market – SPY vs VOO – to help you decide which one you should invest in.
An Overview of SPY vs VOO
Both the SPDR S&P 500 ETF Trust (SPY) and Vanguard 500 Index Fund ETF (VOO) are designed to track the S&P 500 index so they have similar holdings in their portfolios. SPY and VOO both hold ~500 stocks in their funds and have comparable performance history and dividend yields.
Currently, both funds have about 25% of their portfolio invested in their top ten holdings, which include companies such as Apple, Amazon, Microsoft, Berkshire Hathaway, and Johnson & Johnson. Both ETFs have less than 6.5% of their fund invested in any one stock, which helps to diversify their holdings. Because both funds track the S&P 500, they give investors broader exposure to the U.S. market and allow them to easily diversify their portfolios even if they have limited capital.
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What’s the Difference?
At a first glance, both SPY and VOO may look the same given that they are tracking the same index and have similar holdings in their portfolios. However, there are a few key differentiators that make one fund better than the other.
The expense ratio is the cost you pay to invest in a mutual fund. Investors usually pay close attention to the expense ratio because it can be used as a determining factor to decide which funds to invest in.
For SPY, the expense ratio is 0.09% compared to 0.03% for VOO. That means for every $10,000 that you invest in SPY, you are charged $9 in fees. For every $10,000 you invest in VOO, you are charged $3 in fees. While this difference may seem small, when you have a large portfolio, these fees can add up over time.
This is a comparison chart of the performance of SPY vs. VOO over the last 10 years based on data from ETF.com.
Though both VOO and SPY have similar overall returns and performance, if you take a closer look, VOO does perform slightly better than SPY in the long run.
SPY has a 90-day average trading volume of 87,167,140, whereas VOO has a 90-day trading volume of 4,409,713, according to Fidelity as of December 21, 2022. This means that on any given day, SPY typically trades at a volume about 19.76x greater than VOO, and thus has a narrower bid-ask spread.
The trading volume is important to pay attention to because it measures the market activity and liquidity of an asset during a given time period. Assets that have larger trading volumes, which in this case is SPY, are considered better because they are more liquid and have faster order execution. This means that your orders are more likely to get filled quickly and at the prices you want.
Assets Under Management
While both funds track the same index, there is a significant difference in the total assets they have under management. According to Fidelity, as of December 21, 2022, VOO has net assets of $278.7B while SPY has net assets of $368.1B, which is a huge difference.
Currently, SPY is issued by the State Street Global Advisors while VOO is issued by Vanguard Group.
These are the top ten holdings for SPY vs VOO.
From the chart, we can see that both are made up mostly of technology companies such as Apple, Microsoft, Amazon, Tesla, and Alphabet (Google), but they also give investors exposure to hundreds of other stocks.
Currently, both SPY and VOO have similar sector exposure but weigh heavier in the technology sector due to the domination of companies such as Apple, Amazon, Facebook, and Google. Following the technology sector include healthcare, consumer discretionary, financials, and communication services, which together make up the bulk of these funds’ sector exposure.
Below are the breakdowns based on sector exposure for SPY vs VOO.
Below are the breakdowns of the market capitalization for SPY (left) vs VOO (right).
In terms of market capitalization, we can see that SPY and VOO both have the most exposure to giant- and large-cap companies. Large-cap companies typically have market capitalizations of more than $10 billion and grow at a slower rate than small-cap companies, which are usually valued between $300 million and $2 billion. Mid-cap companies have valuations between $2 and $10 billion. Compared to small-cap stocks, large-cap stocks are more mature and stable.
There is currently no investment minimum for either SPY or VOO. Some brokerages today, such as M1 Finance, also offer fractional shares, which means you can invest as little as $20 into either fund.
Which is Better – SPY or VOO?
If you are planning on holding one of these funds as a long-term investment, we recommend investing in VOO due to its lower expense ratio. Over the long run, this means slightly higher annual returns because of VOO’s lower cost basis. However, if you plan on buying or selling options, then SPY is a better choice because it is more liquid and has a higher volume. The expense fee will be less relevant if you are trading since you are holding the fund for a shorter period.
What Other S&P 500 ETFs Should You Consider?
Other S&P 500 ETFs to consider are iShares Core S&P 500 ETF (IVV) and SPDR Portfolio S&P 500 ETF (SPLG), which both have expense ratios of 0.03% and decent trading volume. Beyond these options, there are not many alternative S&P 500 ETFs that are competitive enough for comparison.
How Much Should You Invest in S&P 500 ETFs?
How much you should invest in either of these funds depends entirely on your financial goals, risk tolerance, and financial literacy. Keep in mind that these S&P 500 ETFs primarily track large-cap U.S. stocks, so if you want more exposure to international, mid-cap, or small-cap stocks, you should not invest all your money into VOO or SPY.
Currently, I invest in VOO in my individual brokerage account to balance out some of the more aggressive holdings in my account. My portfolio leans more heavily towards growth and tech stocks because that is the industry I work in and am most familiar with.
Additionally, my Roth IRA has about 17.28% in FSKAX (Fidelity Total Market Index Fund), which has an expense ratio of 0.015% and 15.7% in FZILX (Fidelity Zero International Index), which has an expense ratio of 0%. With ETFs and index funds becoming more popular, many brokerages such as Vanguard and Fidelity are offering funds with 0% expense ratios, so it is worth looking into those as well.
The Bottom Line
On a high level, VOO and SPY are essentially the same. They both track the S&P 500 index, have similar sector and market capitalization exposure, similar holdings in their funds, and comparable performance over time.
However, one of the biggest differentiators is their expense ratio, which can play a huge role in your investment decision. Though both funds have relatively low expense ratios compared to other funds with expense ratios upwards of 1%, SPY does have a 3x higher expense ratio than VOO. If you are investing and holding for years or decades, that fee will add up and is something you should consider.