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SPY vs VOO 2022 Comparison - Which S&P 500 ETF is Better?

In this article, we will be talking about the differences between two S&P 500 ETFs — Namely SPY and VOO. First, we will give you some background information on the similarities and differences between each fund as well as some of their unique advantages and disadvantages.

To give a brief overview to start: Both SPY and VOO are designed to hold a portfolio that attempts to mirror the S&P 500 index rather than the entire market – they’re meant to help investors gain exposure to the general US market and help diversify a portfolio easily.

Overall, we’d say if you are holding the fund long-term for passive investing reasons then VOO is the better choice, however if you plan on selling covered-calls against it or buying/selling options then SPY is the better choice. This is because VOO has a better (lower) expense ratio and thus slightly higher annual return historically, but has little options volume, while SPY is the most liquid S&P 500 ETF on the market when it comes to options trading.

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What Similarities do SPY and VOO have?

  • Both SPY and VOO track the S&P 500 index comprised of the top 500 stocks traded on US-markets and attempt to mirror it – they do an excellent job at this, although technically they usually have more than 500 holdings for various reasons, slightly skewing them off the index (by <0.1%/year).

  • Both have approximately 27% of the fund invested in their top-10 holdings, largely comprising of tech companies and well-known American companies like JPM Chase and Johnson & Johnson.

  • Both ETFs have <6% of the fund invested in any single stock, making it quite diversified, albeit slightly tech-heavy due to the S&P’s weighting being tech-heavy with both funds having about 27% of the funds invested in tech.

What are the Differences Between SPY and VOO?

  • SPY (the “SPDR S&P 500 ETF”) has a 0.10% expense ratio, and VOO (the “Vanguard S&P 500 ETF”) has a 0.03% expense ratio – so VOO is slightly cheaper to own over the long run.

  • SPY has enormous options volume, making selling covered calls against your stock or speculating via options on the movement of the S&P 500 much easier and less risky compared to stocks with little options volume (such as VOO).

  • While both funds are extremely liquid they’re liquid at a whole different level — VOO has 195 Billion AUM and over 1 billion dollars of shares traded every day and SPY has 355 Billion AUM and over 24billion dollars of shared traded every day on average. In practice this means nothing for long-term investors, as they’re both liquid, but for traders it can matter.

SPY vs VOO - Which Is the Better Investment?

To get to the point – VOO is the superior fund for most people who simply want to buy and hold the S&P 500 index due to its lower fees and equal to slightly better-annualized return, but I’d argue that the difference between them isn’t too significant, so if you’ve already purchased SPY, especially if you have significant gains on it, it’s likely not worth the tax bother of selling SPY simply to swap it out for VOO or another similar fund.

With that being said, if you’re a trader, or like to engage in investing strategies that include options (derivatives) you would probably prefer SPY over VOO due to its greater trading volume, especially in the options department. If you’re trading the higher fees won’t really make a difference as you’ll hold the fund for small periods. Personally I’d use SPY for options trading and hold VOO for passive investing.

Another thing to consider is what if SPDR or Vanguard goes bankrupt and the ETF’s are forced to close down – if you consider this to be a real risk I’d recommend reading up on ETF bankruptcy and what it entails (tax consequences). Because of this it might be wise to spread the risk across many issuers, for example having funds from both SPDR or Schwab as well as Vanguard, rather than buying only one fund.

What Other S&P 500 ETFs Are Worth Considering?

The only other real worth-while ETF that tries to mirror the S&P 500 index is Ishares Core S&P 500 ETF (IVV) which is very competitive with a low 0.03% expense ratio just like VOO offers, still with good liquidity and AUM.

Beyond that there isn’t any competitive S&P 500 ETFs, so I’d stick with those 3. If you’re worried about ETF/institutional risks (bankruptcy) you probably should go for 2 of them. Our personal choice would be to go with VOO and IVV if we’re holding long-term, or SPY and IVV if we’re also doing some options trading.

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

The answer to this question entirely depends on your goals, financial education level and passion, as well as risk tolerance – so it’s something that I cannot answer. If you aren’t sure you should probably talk to a financial advisor or take some time to figure it out on your own.

Personally though I would say that one can easily allocate half of their broad-market ETF portfolio to S&P 500 ETFs, however I wouldn’t want my broad-market ETF portfolio being more than 30% of my overall portfolio personally — so for me no more than 15% of my overall portfolio, as I’d rather have some ex-US broad-market ETFs in the mix as well.

How Large of a Difference Does The Extra 0.05% Fee SPY Charges Make?

Every 5 years it reduces your returns by about 0.72%, historically speaking. It’s not a big deal by any means, but if you’re investing 100,000 over the next 20 years of your life, that’ll be thousands of dollars in fees blown away in the wind.

Normally we aren’t people to worry about fees, but 0.08% to 0.03% is quite a big difference — if it was 0.04% to 0.03% we wouldn’t care, but 0.05% is a big enough difference for us to care, even though it’s relatively irrelevant in the grand scheme of things.