SPY vs VOO: Two Roads to the Same S&P 500
SPY and VOO are the two most popular S&P 500 ETFs, and they track the exact same index. Every company in SPY is also in VOO, in the same proportion. So why do both exist, and does it actually matter which one you buy?
The short answer: yes, it matters — but probably less than you think. The differences come down to fees, fund structure, trading volume, and a few quirks that affect specific types of investors. Let's break it down dimension by dimension.
You can see a real-time comparison of both funds on the SPY vs VOO comparison page.
Expense Ratio: VOO Wins on Cost
This is the biggest practical difference between the two funds. VOO charges an expense ratio of 0.03%. SPY charges 0.0945%. That means SPY costs roughly three times more than VOO in annual fees.
On a $100,000 investment, that difference works out to about $65 per year. Over 30 years with compounding, the fee gap can add up to thousands of dollars in lost returns. For a buy-and-hold investor, this is real money with zero added benefit.
Why hasn't SPY lowered its fee? Partly because of its fund structure (more on that below), and partly because its dominant position in institutional and options trading sustains demand regardless of cost. SPY does not need to compete on fees because its users value liquidity, not cheapness.
Fund Structure: UIT vs Open-Ended Fund
SPY is structured as a unit investment trust (UIT) — an older legal framework that was the only option available when it launched in 1993 as the first US-listed ETF. This structure comes with a few limitations.
Most notably, a UIT cannot reinvest dividends received from its holdings. When companies in the S&P 500 pay dividends, SPY collects them and holds them as cash until its quarterly distribution date. This "cash drag" means SPY misses out on the returns those dividends could have earned if immediately reinvested.
VOO uses a modern open-ended fund structure that can reinvest dividends immediately, lend securities to earn extra income, and use sampling techniques for more efficient index tracking. This structural advantage contributes to VOO's ability to maintain a lower expense ratio and slightly tighter index tracking.
Trading Volume and Liquidity: SPY Dominates
SPY is the most heavily traded ETF in the world. Its average daily volume regularly exceeds 70 million shares, compared to roughly 5-7 million for VOO. This enormous liquidity translates into razor-thin bid-ask spreads — often just a penny.
For institutional traders moving millions of dollars, SPY's liquidity is a significant advantage. They can enter and exit massive positions without moving the price. For options traders, SPY has the deepest and most liquid options market of any ETF, with tighter spreads and more strike prices available.
For individual investors buying a few hundred or a few thousand dollars' worth? The liquidity difference is irrelevant. VOO's spreads are still extremely tight, and you will have no trouble buying or selling at fair prices. The liquidity premium you pay through SPY's higher expense ratio is a cost without a benefit for most retail investors.
Performance Comparison
Because both funds track the identical index, their gross returns are the same. The only performance difference comes from the expense ratio drag and structural factors like dividend reinvestment and securities lending.
Over the past decade, VOO has outperformed SPY by a small but consistent margin — typically 5-7 basis points per year — which aligns almost exactly with the fee difference. There is no magic here. Lower costs equal better net returns when the underlying holdings are the same.
Check the head-to-head comparison for the latest performance data on both funds.
Assets Under Management
SPY manages over $500 billion in assets, making it one of the largest investment funds in the world. VOO is not far behind, with assets frequently exceeding $400 billion. Both are absolutely massive, and neither has any risk of closure or tracking issues due to insufficient scale.
The AUM difference has no practical impact on individual investors. Both funds have more than enough assets to track the S&P 500 with minimal tracking error.
Tax Efficiency
Both funds are highly tax-efficient because they are passively managed index funds with low turnover. The S&P 500 index changes infrequently, so neither fund generates significant capital gains from trading.
VOO has a slight structural edge due to its open-ended fund format, which allows more flexible use of the in-kind creation and redemption mechanism. SPY's UIT structure limits some of these capabilities. In practice, both funds have distributed minimal capital gains throughout their histories, so the tax difference is negligible for most investors.
Dividend Distributions
Both SPY and VOO distribute dividends quarterly. The yields are very similar since they hold the same stocks. SPY pays dividends in March, June, September, and December. VOO follows a similar quarterly schedule.
As noted earlier, SPY holds dividends as cash until distribution, creating a slight cash drag. VOO reinvests dividends into the portfolio upon receipt. This difference slightly favors VOO in rising markets and slightly favors SPY in falling markets, but the impact is minimal in either case.
Which S&P 500 ETF Is Right for You?
Choose VOO If You Are a Long-Term Investor
If you plan to buy and hold for years or decades, VOO is the clear winner. The lower expense ratio compounds in your favor over time, and you gain no benefit from SPY's extra liquidity. This is the right choice for retirement accounts, college savings, and any long-term wealth-building strategy.
You might also consider IVV (iShares Core S&P 500), which charges 0.03% and uses the same modern fund structure as VOO. See how to choose an S&P 500 ETF for a full comparison of all the major options.
Choose SPY If You Trade Actively or Use Options
If you are a day trader, swing trader, or options trader, SPY is the industry standard. Its unmatched liquidity, tight spreads, and deep options market make execution costs lower for frequent trading despite the higher expense ratio. The extra expense only matters if you hold for a long time — short-term traders pay it for days or weeks, not years.
The Verdict
For the vast majority of investors — anyone buying and holding S&P 500 exposure for the long term — VOO is the better choice. It is cheaper, uses a more modern structure, and delivers slightly better net returns. The only reason to choose SPY is if you need its superior trading liquidity or options market depth.
Whatever you pick, owning either fund means you have a low-cost, diversified stake in 500 of the largest US companies. That is a solid foundation for any portfolio. Explore all S&P 500 ETFs in the ETF directory, or see how to build an ETF portfolio around your core holding.
