VOO vs. SPY: Is There Actually a Difference?
Key Points
The Vanguard S&P 500 ETF (VOO) and the State Street SPDR S&P 500 ETF (SPY) are two of the largest funds in the world.
VOO is cheaper and generally preferred by retail buy-and-hold investors.
Big institutions tend to like SPY's strong liquidity and tradeability.
If you're trying to choose between the Vanguard S&P 500 ETF (NYSEMKT: VOO) and the State Street SPDR S&P 500 ETF (NYSEMKT: SPY), it might seem they're essentially interchangeable. They're both huge and track the same index.
At a high level, that's probably true. But if you want to dive deep and get picky, a few factors set them apart.
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VOO is slightly cheaper than SPY
The State Street SPDR S&P 500 ETF has an expense ratio of 0.0945%. The Vanguard S&P 500 ETF charges just 0.03%. Given that the index has historically returned about 10% per year, this fee difference may seem immaterial. But I will take any advantage I can get.
Because of their sizes, trading spreads (the difference between the buying (ask) price and the selling (bid) price of a stock) are virtually nothing, so spreads aren't really a consideration here. But if you can own the exact same index for a third of the cost, why not?
SPY is preferred by institutions; VOO is preferred by retail
Even though the Vanguard S&P 500 ETF has roughly $200 billion more in assets under management, it has only about 20% the trading volume of the State Street SPDR S&P 500 ETF. This advantage in tradeability and liquidity makes the latter the preferred trading vehicle for large traders and institutions.
The Vanguard S&P 500 ETF, on the other hand, tends to be used more often by retail buy-and-hold investors. It's a minor difference, but one worth being aware of.
Overall, the differences between the two ETFs are minor. The investment itself is obviously the same, but the Vanguard S&P 500 ETF comes with a distinct cost advantage. For retail investors, it's probably the better choice.
David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.