The choice between the Vanguard S&P 500 ETF (NYSEMKT:VOO) and the State Street SPDR S&P 500 ETF Trust (NYSEMKT:SPY) often comes down to cost for long-term investors.
Both funds serve as foundational building blocks, providing exposure to the 500 largest U.S. companies. While they track the same underlying index, structural differences and expense ratios can influence total returns for those holding these ETFs over several decades.
Snapshot (cost & size)
Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-year return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.
VOO is the cheaper option, carrying an expense ratio of 0.03% vs. SPY’s 0.09%. Both funds offer a dividend yield of roughly 1%.
Performance & risk comparison
What’s inside
Under the hood, both funds look very similar.
Launched in 2010, VOO holds 505 stocks. Its largest positions include Nvidia (NASDAQ:NVDA) at 7.9%, Apple (NASDAQ:AAPL) at 7.0%, and Microsoft (NASDAQ:MSFT) at 5.1%. The ETF’s sector weights are concentrated in technology at 39.1%, financial services at 10.9%, and communication services at 10.7%.
SPY holds 503 stocks and was launched in 1993 — making it the oldest U.S.-listed ETF still trading today. Its largest positions include Nvidia at 7.9%, Apple at 7.1%, and Microsoft at 5.1%. Its top sector weights include technology at 39.1%, financial services at 11.1%, and communication services at 10.6%.
As a unit investment trust — a legacy legal structure that predates modern ETF design — SPY is legally required to hold incoming dividends in a non-interest-bearing cash account until they are distributed quarterly, rather than putting that money back to work immediately. It also cannot engage in securities lending. VOO, as an open-end fund, does both — reinvesting dividends right away and lending securities for additional income — giving it a small but structural edge that can compound over time.
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What this means for investors
At first glance, VOO and SPY look nearly identical — and for most practical purposes, they are. Both give you broad exposure to the U.S. economy’s biggest companies. But “nearly identical” isn’t the same as identical, and for long-term investors, the differences are worth understanding.
The clearest edge belongs to VOO. Its 0.03% expense ratio is one-third the cost of SPY’s 0.09% annual fee — a gap that may seem trivial in any given year but can compound meaningfully over decades.
SPY’s structural quirks also create some small disadvantages for investors. Because SPY is a unit investment trust, it’s legally required to park incoming dividends in a non-interest-bearing cash account before distributing them, rather than reinvesting that money immediately, as VOO does. SPY also can’t generate extra income through securities lending. Neither of these factors is dramatic on its own, but both quietly work against SPY holders over long time horizons.
The bottom line is that both funds are excellent vehicles for capturing S&P 500 returns — and either one would serve most long-term investors well. But if you’re building a portfolio with a multi-decade horizon, VOO’s lower cost gives it a quiet compounding edge that’s hard to ignore.
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Andy Gould has positions in Apple and Nvidia and has the following options: long January 2027 $125 calls on Nvidia and short January 2027 $125 puts on Nvidia. The Motley Fool has positions in and recommends Apple, Microsoft, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
VOO vs. SPY: Which Popular S&P 500 ETF Is the Better Buy? was originally published by The Motley Fool