Wealthy PotSPY vs VOO: Which S&P 500 ETF Should You Own?
SPY and VOO track the exact same index, the S&P 500. Buy either and you own the same 500 companies in the same proportions. Yet investors spend a surprising amount of energy choosing between them, and the internet is full of charts claiming one crushes the other. Most of those charts are wrong. This guide compares the two using figures pulled straight from State Street and Vanguard, explains the one structural difference that actually matters, and tells you which fund fits which kind of investor.
The Short Answer
- Long-term buy-and-hold investor? VOO. Its expense ratio is 0.03% versus SPY's 0.0945%, and its fund structure lets it work slightly more efficiently over decades. For money you plan to hold for years, VOO is the cleaner choice.
- Active trader or options user? SPY. It is the most heavily traded ETF in the world, with the deepest options market and the tightest bid-ask spreads. Traders value that liquidity more than a few hundredths of a percent in fees.
Both are excellent, low-cost ways to own the S&P 500. There is no wrong answer here, only a better fit. The rest of this article explains why.
Same Index, Different Wrapper
Both funds hold the S&P 500, the benchmark of 500 large U.S. companies. Their holdings are effectively identical because they follow the same index. What differs is the wrapper, the legal and operational structure around those holdings, plus cost and how they trade.
- SPY is the SPDR S&P 500 ETF Trust, run by State Street. Launched on January 22, 1993, it was the first U.S.-listed exchange-traded fund. It is organized as a unit investment trust (UIT), a structure that predates modern ETF rules.
- VOO is the Vanguard S&P 500 ETF, launched September 7, 2010. It is a share class of a Vanguard open-end index fund, the same modern structure used by most ETFs today.
If the difference between a UIT and an open-end fund means nothing to you yet, that is fine. It has a small but real effect, and we break it down below.
SPY vs VOO Side by Side
| Feature | SPY (State Street) | VOO (Vanguard) |
|---|---|---|
| Index tracked | S&P 500 | S&P 500 |
| Expense ratio | 0.0945% | 0.03% |
| Fund structure | Unit investment trust (UIT) | Open-end fund |
| Inception | Jan 22, 1993 | Sep 7, 2010 |
| Net assets | ~$816 billion | ~$979 billion |
| Dividend handling | Held as cash until paid out | Can be reinvested internally |
| Securities lending | Not permitted (UIT rule) | Permitted |
| Trading liquidity | Highest of any ETF | Very high, but lower than SPY |
| Options market | Deepest of any ETF | Available, far thinner |
| Best for | Traders, options strategies | Long-term buy-and-hold |
The Fee Difference, in Dollars
The headline gap is the expense ratio: 0.0945% for SPY versus 0.03% for VOO, a difference of about 0.0645 percentage points, or 6.45 basis points. That sounds trivial because it is small, but it is worth seeing in real dollars:
| Amount invested | SPY annual fee (0.0945%) | VOO annual fee (0.03%) | You keep with VOO |
|---|---|---|---|
| $10,000 | $9.45 | $3.00 | $6.45/yr |
| $100,000 | $94.50 | $30.00 | $64.50/yr |
| $500,000 | $472.50 | $150.00 | $322.50/yr |
For a large, long-held balance the fee gap compounds into real money, which is the main reason cost-focused investors lean VOO. For a $10,000 position, the difference is roughly the price of a sandwich per year, which is why traders who value SPY's liquidity do not lose sleep over it. Use our compound interest calculator if you want to model the gap over your own time horizon.
SPY's UIT Structure: Real Effects, Not the Myth
First, the myth. You have probably seen a chart claiming SPY returned around 255% over ten years while VOO returned around 320%, framed as proof that SPY's old structure quietly bleeds returns. That comparison is misleading. It usually pits SPY's price return (no dividends) against VOO's total return (dividends reinvested). On an apples-to-apples total-return basis, the two funds finish within a few hundredths of a percent per year of each other, a gap that lines up almost entirely with the 6.45-basis-point fee difference. SPY does not secretly lose a third of your money.
Now, the real effects. SPY's unit investment trust structure does create a couple of genuine, if minor, drags that VOO avoids:
- Cash drag on dividends. A UIT cannot reinvest the dividends it collects. They sit as uninvested cash inside the fund until the next quarterly distribution. In a rising market, that idle cash earns nothing while stocks climb, a small drag measured in a few basis points. VOO's open-end structure can put dividends back to work sooner.
- No securities lending. Open-end funds like VOO can lend out their holdings and earn a little income that offsets costs. SPY's UIT rules do not allow this, so it gives up that small offset.
Add the fee gap and these structural quirks together and VOO comes out modestly ahead for a decades-long holder, on the order of a fraction of a percent per year. That is meaningful when compounded across a large balance and a long horizon, but it is nowhere near the dramatic gap the misleading charts imply.
Liquidity and Options
This is where SPY earns its keep. As the oldest and largest-by-volume ETF, SPY trades enormous share volume every day, which keeps its bid-ask spread razor-thin and makes it the default instrument for institutions and active traders. Its options market is the deepest of any ETF, with the most strike prices, the longest-dated contracts, and the tightest spreads. If you write covered calls, buy protective puts, or trade in and out frequently, that depth directly lowers your transaction costs and can matter far more than an expense ratio you pay only once a year.
VOO is highly liquid too, more than enough for any long-term investor buying and holding. But for heavy options activity or large, fast trades, SPY's market is in a class of its own.
Which One Fits You
Choose VOO if: you are investing for the long term, buying and holding through a brokerage or IRA, and you want the lowest ongoing cost. Its 0.03% fee and open-end structure make it the efficient default for retirement-style money.
Choose SPY if: you trade actively, run options strategies, or need to move large positions quickly and want the deepest, tightest market. The extra 6.45 basis points buys you unmatched liquidity.
Already own one? Do not sell a long-held SPY position in a taxable account just to save 0.0645% on VOO. Selling can trigger a capital-gains tax bill that dwarfs years of fee savings. The fee edge matters most for new money and for holdings inside tax-advantaged accounts where switching is free. Still deciding between an ETF and a traditional fund in the first place? See our guide to mutual funds vs. ETFs.
FAQ
Is VOO better than SPY?
For long-term investors, VOO's lower 0.03% expense ratio and more modern fund structure make it slightly better on cost. For active traders and options users, SPY's superior liquidity makes it better. They hold the same stocks, so performance is nearly identical on a total-return basis.
Do SPY and VOO hold the same stocks?
Yes. Both track the S&P 500 Index, so they own the same 500 companies in essentially the same weights. Differences in return come from fees and small structural effects, not from different holdings.
Why is SPY more expensive than VOO?
SPY charges 0.0945% versus VOO's 0.03%. SPY's older unit-investment-trust structure carries higher operating constraints, and State Street has kept its fee steady rather than racing Vanguard to the bottom, partly because SPY's trading liquidity keeps demand strong regardless.
Does SPY really underperform VOO by a lot?
No. Charts showing a large gap almost always compare SPY's price return against VOO's total return. On a fair total-return basis, the two are within roughly the fee difference of each other per year.
Which is better for a Roth IRA?
For a long-term retirement account, VOO's lower fee gives it a small, compounding edge, and because retirement accounts are tax-advantaged you can switch or start fresh without a tax cost. Either fund is a sound core holding.
Primary sources: expense ratios, fund structure, inception dates, and net assets are drawn from State Street's official SPY page and the Vanguard VOO fund page and fact sheet. For background on how ETFs work, see the SEC's Investor.gov guide to mutual funds and ETFs.
This article is for educational purposes only and is not investment advice. Investing involves risk, including possible loss of principal, and past performance does not guarantee future results. Expense ratios, yields, and fund assets change over time; confirm current figures on the issuer's site before investing. Consult a qualified financial professional before making investment decisions.
