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VOO vs SPY: Everything You Need to Know

VOO vs SPY: Everything You Need to Know
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Stocks in the Standard & Poor 500 index are lucrative investments, and most traders look to S&P 500 ETF funds for guidance when making their decisions. The Vanguard S&P 500 ETF (VOO) and the SPDR S&P 500 Trust ETF (SPY) are two of the largest S&P 500 ETFs.

Many investors cannot tell the difference between VOO and SPY, which is understandable considering their numerous similarities. However, they have notable, fundamental differences that can have huge implications for your investments. Here is a comprehensive comparison of VOO vs SPY to help you determine the best choice for your needs.

What Are VOO & SPY?

The S&P 500 index comprises 500 mid-cap and large-cap U.S. stocks, essentially large companies with a high market capitalization. Investors use this index as a measure and benchmark of the overall U.S. stock market and economy.

VOO and SPY are both ETFs designed to track the S&P 500 index. These funds each have holdings in all 500 companies in the S&P 500 index, albeit at varying proportions. As such, they essentially mirror the index’s overall performance. Consequently, investing in these funds exposes your investments to the whole S&P 500 index and reduces the overall cost of owning them.

How Much of Your Portfolio Should Be in S&P 500 ETFs?

It is always advisable to diversify your portfolio to minimize your risks and maximize opportunities. Consequently, it is not prudent to invest only in S&P 500 ETF holdings.

So, how much of your portfolio should comprise S&P 500 ETFs? The answer ultimately depends on various factors, including:

  • Your level of risk tolerance.
  • The size of your portfolio.
  • Your overall investment strategy (long-term or short-term trading).
  • The overall market performance.

So, when determining how much money to invest in the S&P 500 ETF, take the time to consider these and other important factors. However, this index is usually more profitable than most other securities, and some experts allocate more than half of your portfolio to these ETFs.

VOO vs SPY: What Are the Similarities?

Some of the most glaring similarities between SPY and VOO (besides mirroring the S&P 500 index) are:

Diversified Holdings

SPY and VOO both invest in all stocks in the S&P 500 index, albeit at varying proportions. Both portfolios include companies in the following industry segments:

  • Information Technology
  • Consumer Cyclicals
  • Financials
  • Healthcare
  • Industrials
  • Consumer Non-Cyclicals
  • Energy
  • Utilities
  • Basic Materials
  • Telecommunications Services

It is worth noting that both funds have about 27% of their holdings in the Information Technology segment. Their top picks include industry giants such as Facebook, Google, Apple Inc., and Microsoft Corp.

Strong Total Shareholder Returns

SPY and VOO generate their clients’ strong total shareholder returns – annualized returns usually run into the double digits. It is worth noting that VOO generates higher returns because of its lower expense ratio. It is also worth noting that the S&P 500 index has been generating annual returns averaging about 11.6%. 

Relatively Low Yields & Dividend Growth

While SPY and VOO both have strong total shareholder returns, they also have relatively low yields and dividend growth. However, it is worth noting that VOO’s dividend yield is slightly higher than SPY’s.

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SPY vs. VOO: What Are the Differences?

SPY and VOO also have some notable differences that can have significant impacts on your investments. They include:

Expenses

VOO and SPY have varying expense ratios at 0.09% and 0.03%, respectively. However, SPY’s expense ratio decreases its shareholder returns, as explained.

However, the expense ratio difference of 0.06% doesn’t significantly impact annual returns, making it inconsequential for both short-term and long-term investing. Nevertheless, most traders take advantage of all opportunities to save money, making VOO the popular choice. 

Liquidity

SPY is the largest and most liquid index fund in the industry. It has about $422 billion worth of assets under management and registers an average daily trading volume of about $29 billion. On the other hand, VOO has about $273 billion worth of assets under management and registers an average daily trading volume of about $1.81 billion.

The difference between VOO’s and SPY’s liquidity is significant. However, it only matters for aggressive traders with massive positions – it doesn’t matter for the average investor engaging in passive investing. Besides, most people still choose VOO because of its lower share price and expense ratio.

Investment Manager

The investment manager is often the last thing that comes to mind for most investors evaluating SPY vs. VOO. Many people think that the investment manager doesn’t matter as much as the funds’ fees and overall cost of investing. However, it does matter, especially considering the stark difference and standard deviation between these two S&P 500 ETF funds’ investment managers. 

VOO is managed by Vanguard, while State Street administers SPY. Vanguard is a mutual company owned and controlled by its customers, while State Street is partly owned and controlled by third-party shareholders. This has far-reaching repercussions for the clients – ideally, VOO’s investment manager (its customers) makes the best decisions for its clients, while State Street can experience a conflict of interest between its customers and third-party shareholders.

The difference between these funds’ administration also impacts their overall costs and fees – VOO is slightly cheaper because of its simplistic structure. Consequently, VOO is the better choice in this respect, especially for people holding long-term positions.

Read our related post: VTSAX vs VTI

Analysis

Here is an overview of how SPY and VOO compare based on data collected over the past decade:

Data

The data used to compare the performance of VOO and SPY S&P 500 ETF funds was collected from Yahoo! Finance, a trusted database. It dates back to 2010 when VOO was launched (SPY is the first ETF index fund in the market and dates back to 1993).

Daily Price Difference

SPY was worth about $10 more than VOO at the start of these records. SPY is now worth about $25 more than VOO, representing a 250% difference. This daily price difference is notable, but it only represents raw price changes between SPY vs. VOO.

Day-to-Day Percent Changes

A review of these funds’ day-to-day changes in percentages gives a better insight into their prices’ fluctuations. A review of the data reveals an insignificant difference between their prices’ changes in the long run. Overall, both funds have an equal chance of increasing (or decreasing) in value by about 0.25%.

Year-to-Year Percent Changes

Traders looking to invest for the long run are best served by a long-term outlook. VOO clearly registers a more significant percentage increase year-over-year compared to SPY, which loses about 0.1%.

Which Is the Better ETF?

VOO is the ETF of choice for most investors. It is especially popular for its strong corporate structure and low expense ratio, and overall fees. However, it is important to consider your investing needs and preferences to ensure that you pick the ideal ETF for you.

VOO vs SPY Conclusion

Many investors seeking to invest in companies in the S&P 500 index turn to VOO and SPY for direction and to maximize their exposure to the markets. These Exchange Traded Funds share many similarities, but they also have several notable differences, as explained above. Therefore, it is prudent to take your time to consider what each ETF has to offer before making your choice.