SPY vs VOO: Which S&P 500 ETF Should You Buy?
If you are trying to decide between SPY vs VOO, you are not alone. These two ETFs are the most popular ways to invest in the S&P 500, and millions of beginners face this exact choice every year. Both funds track the same 500 large U.S. companies. Both have delivered nearly identical long-term returns. But there are real differences between them, and picking the right one could save you hundreds or thousands of dollars over a decade. This guide breaks down the SPY vs VOO decision in plain English so you can invest with confidence.
What Is SPY and How Does It Compare to VOO?
SPY stands for the SPDR S&P 500 ETF Trust. It was launched on January 22, 1993, making it the very first ETF ever listed in the United States. It is managed by State Street Global Advisors, which is a large financial company also known as SPDR.
Here are the key facts about SPY:
- Issuer: SPDR (State Street Global Advisors)
- Launched: January 22, 1993
- Expense ratio: 0.0945% per year
- Assets under management: Over $500 billion
- Structure: Unit Investment Trust (UIT)
SPY holds all 500 stocks in the S&P 500 index. When you buy one share of SPY, you instantly own a tiny piece of Apple, Microsoft, Amazon, Google, and 496 other big U.S. companies. The fund automatically rebalances when the index changes, so you never have to do anything.
Because SPY is so old and so large, it trades billions of dollars worth of shares every single day. That makes it the most liquid ETF in the world. Traders love it for this reason. Options traders especially love it because the SPY options market is the deepest and most active in the entire stock market. If you want to use options strategies like covered calls or protective puts, SPY is the standard tool professionals reach for.
One quirk: SPY is structured as a Unit Investment Trust. This means it cannot reinvest dividends automatically. Instead, it holds dividend cash in a non-interest-bearing account until the quarterly payout date. This creates a very small drag on returns compared to funds that reinvest dividends right away. You can learn more about how dividend reinvestment works in our SCHD Dividend Calculator.
What Is VOO?
VOO stands for the Vanguard S&P 500 ETF. It was launched on September 7, 2010, by Vanguard, the investment company founded by John Bogle. Bogle is the man who invented index fund investing and spent his career fighting for lower fees for everyday investors.
Here are the key facts about VOO:
- Issuer: Vanguard
- Launched: September 7, 2010
- Expense ratio: 0.03% per year
- Assets under management: Over $500 billion
- Structure: Open-end mutual fund ETF
VOO tracks the exact same S&P 500 index as SPY. The 500 companies inside VOO are the same 500 companies inside SPY. The performance over long periods is nearly identical.
The big difference is cost. VOO charges just 0.03% per year. That is less than one-third of what SPY charges. For every $10,000 invested, VOO costs you $3 per year. SPY costs you $9.45 per year. That gap compounds over decades and the difference becomes very real money.
VOO is also structured differently than SPY. As an open-end ETF, it can reinvest dividends immediately rather than holding cash. This small advantage adds up slightly over long time horizons. Vanguard’s official VOO page has the full fund details and current performance data.
VOO is Vanguard’s flagship ETF and is widely considered the gold standard for long-term, buy-and-hold index investing. It now has over $500 billion in assets, making it one of the largest funds on earth.
SPY vs VOO: Key Differences
Now let’s put SPY vs VOO side by side so you can see exactly how they compare on every dimension that matters.
| Feature | SPY | VOO |
|---|---|---|
| Issuer | State Street (SPDR) | Vanguard |
| Launched | 1993 | 2010 |
| Expense Ratio | 0.0945% | 0.03% |
| AUM | ~$500B+ | ~$500B+ |
| Dividend Treatment | Holds cash (UIT) | Reinvests immediately |
| Avg. Daily Volume | Extremely high | High |
| Options Market | World’s most liquid | Less liquid |
| Best For | Active traders, options | Long-term investors |
Expense Ratio: The Biggest Difference
The expense ratio is the annual fee you pay to own the fund. It is taken out of the fund’s assets automatically, so you never write a check. But it does reduce your returns every single year.
VOO charges 0.03%. SPY charges 0.0945%. That means SPY costs more than three times as much as VOO every year.
On a small amount, the difference looks tiny. But over 30 years, it adds up fast. If you invest $10,000 today and the market grows at 8% per year:
- With VOO (0.03% fee): you end up with roughly $97,200
- With SPY (0.0945% fee): you end up with roughly $96,400
That is about $800 less just from the fee difference on a single $10,000 investment. Now imagine you are investing $500 per month for 30 years. The gap becomes thousands of dollars. The more you invest, and the longer you hold, the bigger the cost difference grows.
Dividend Yield and Treatment
Both SPY and VOO pay dividends every quarter. The yield is almost identical, typically around 1.2% to 1.4% per year depending on market conditions.
The difference is what happens to dividends before payout day. SPY, as a Unit Investment Trust, holds dividend cash in a non-interest-bearing account while waiting for the quarterly distribution date. VOO, as an open-end fund, can reinvest dividends right away. This gives VOO a tiny performance edge, especially in rising markets. It is not a huge deal, but it does exist.
Liquidity and Bid-Ask Spread
SPY trades a massive volume of shares every day, often more than $30 billion worth. That makes it extremely easy to buy and sell at any moment without moving the price. The bid-ask spread (the gap between what a buyer pays and what a seller receives) on SPY is often just one penny.
VOO is also very liquid, but its spread is slightly wider than SPY’s. For someone buying a few shares each month, this does not matter at all. For institutional traders moving millions of dollars in and out quickly, it matters quite a lot.
If you are a regular investor contributing to your portfolio monthly, the liquidity difference between SPY and VOO will never affect you in any meaningful way.
Options Trading
This is where SPY truly stands apart from VOO. SPY has the most active options market of any ETF or stock in the world. Traders use SPY options to hedge portfolios, speculate on short-term moves, generate income through covered calls, and build complex multi-leg strategies.
VOO has options too, but the market is much thinner. The volume is lower, the bid-ask spreads are wider, and the variety of strikes and expiration dates is more limited. If you plan to trade options, SPY is the clear winner. If you just want to invest and hold, options trading is irrelevant to your choice.
Which One Should You Choose?
The answer comes down to one simple question: are you a long-term investor or an active trader?
Choose VOO If You Are a Long-Term Investor
If your plan is to invest regularly, hold for decades, and build wealth slowly, choose VOO. The lower expense ratio (0.03% vs 0.0945%) means you keep more of your returns every single year. Over 20 or 30 years, that small annual savings compounds into a significant sum.
VOO is a great fit whether you invest through Vanguard’s own brokerage or any other major platform. Fidelity, Schwab, and most other brokers offer VOO commission-free. You can also buy fractional shares of VOO on many platforms, which makes it easy to invest any amount.
If you use dollar-cost averaging, where you invest a fixed amount every month regardless of whether the market is up or down, VOO is typically the smarter long-term choice over SPY. Want to see how that kind of regular investing could grow your money? Try our free DCA Calculator and run the numbers for yourself.
Choose SPY If You Are an Active Trader
If you trade frequently, use options strategies, or need to move large amounts of money in and out of the S&P 500 quickly, SPY is the better tool. Its massive daily volume and ultra-tight bid-ask spread make it the most efficient vehicle for short-term trading in the entire market.
Many professional investors and hedge funds use SPY specifically because of its options liquidity. Covered calls, protective puts, iron condors, spreads: all of these strategies work better with SPY than with VOO because the SPY options market is so much deeper and more active.
Even if you plan to hold SPY long term, the higher expense ratio is a real ongoing cost. It will not ruin your returns, but there is no logical reason to pay more than you have to if trading liquidity is not important to you. For most regular investors, VOO is simply the better deal.
What About Performance?
Over any long period, SPY vs VOO performance is nearly identical. They track the same index. They hold the same stocks. The only real performance difference comes from the expense ratio gap and the small dividend reinvestment advantage VOO has. Over 10 years, VOO will typically outperform SPY by about 0.06% to 0.08% per year. That is small but real.
Do not let perfect be the enemy of good here. Either fund will give you broad exposure to the U.S. stock market and has historically returned around 10% per year on average before inflation. The difference between choosing SPY vs VOO is tiny compared to the impact of simply starting to invest and staying consistent.
The Bottom Line
Both SPY and VOO are excellent funds. They track the same index, hold the same stocks, and have delivered nearly identical long-term performance. You cannot make a terrible choice here. Either one is a great foundation for a long-term investment portfolio.
But when you put SPY vs VOO head to head, the winner depends on your goals. For most people who are investing for retirement or building long-term wealth, VOO wins. The lower cost adds up significantly over time. For active traders and options users, SPY wins because of its unmatched liquidity and the depth of its options market.
The most important thing is not which one you pick. It is that you start investing and keep investing consistently over time. Want to see how dividend reinvestment could compound your returns? Try our free DRIP Calculator and run the numbers.
And if you want to diversify beyond index funds and add some crypto exposure to your portfolio, check out Bitunix (no KYC required).
Frequently Asked Questions About SPY vs VOO
Is SPY vs VOO really that different?
In terms of the stocks they hold, no. Both funds own the same 500 companies in the same proportions. But in terms of cost and use case, yes. The SPY vs VOO cost difference (0.0945% vs 0.03%) is small per year but meaningful over a lifetime of investing. The liquidity difference matters a lot for traders but not at all for passive investors.
Can I hold both SPY and VOO at the same time?
Yes, you can. But there is no good reason to. They are almost perfectly duplicated funds. Holding both gives you zero diversification benefit. If you want to simplify, just pick one and stick with it. Most long-term investors who do the SPY vs VOO analysis end up picking VOO for its lower cost and never looking back.
Which has better returns, SPY or VOO?
Over any significant period, SPY vs VOO returns are nearly the same. VOO has a very slight edge because of its lower expense ratio and immediate dividend reinvestment. But we are talking about fractions of a percent per year. Both funds have historically returned around 10% per year over long periods before inflation. The return difference is not why you choose one over the other.
Is SPY or VOO better for a Roth IRA?
For a Roth IRA where you are investing for the long haul, VOO is generally the better choice. The lower expense ratio means more of your money stays invested and compounds tax-free. The liquidity advantage of SPY does not help you in a retirement account where you are not actively trading. For buy-and-hold retirement investing, VOO wins the SPY vs VOO comparison.
