Exchange-Traded Funds (ETFs) have gained significant popularity among investors due to their ease of use, diversification benefits, and low costs. When it comes to broad-based US large-cap stock ETFs, two popular options are IVV vs VOO. Understanding the differences between these ETFs is crucial if you're looking to make informed investment decisions. In this article, we'll compare IVV vs VOO in terms of their performance, similarities, and fees.
IVV: iShares Core S&P 500 ETF Overview
IVV, also called the iShares Core S&P 500 ETF, is a BlackRock-managed ETF. Its goal is to replicate the performance of the S&P 500 Index, which represents the 500 largest publicly traded firms in the United States. IVV gives investors exposure to the large-cap equities market in the United States and is a handy approach to acquiring diversified exposure to the broader stock market in the United States.
IVV has a proven track record of outperforming the S&P 500 regarding returns. It is regarded as a reliable investment option for people looking for broad exposure to the stock market in the United States. The fundamental characteristics of IVV are liquidity, openness, and low expenses.
VOO: Vanguard S&P 500 ETF Overview
Another prominent ETF that tracks the S&P 500 Index is VOO or the Vanguard S&P 500 ETF. VOO is managed by Vanguard, one of the significant investment management firms. VOO seeks to provide investors with inexpensive exposure to the large-cap equities market in the United States.
VOO, like IVV, tries to duplicate the performance of the S&P 500. It allows investors to get involved in the general expansion of the US stock market. Tax efficiency, low expenses, and an emphasis on long-term investment goals are among the significant characteristics of VOO.
If you already have a Vanguard account it may be easier to start to invest in VOO. Vanguard allows fractional shares to be bought with their own ETFs.
Important Similarities of IVV vs VOO
Despite the fact that they are operated by different firms, IVV and VOO have some similarities:
Tracking the S&P 500
IVV and VOO both track the S&P 500 Index. This means they want to duplicate the results of the same underlying index, which includes 500 large-cap US firms. You can expect comparable returns that closely track the performance of the S&P 500.
The primary investing goal of IVV and VOO is to offer shareholders exposure to the large-cap equities market in the United States. Both ETFs aim to provide broad market exposure, allowing you to participate in expanding the US economy.
Advantages of Diversification
Investing in IVV or VOO provides diversification benefits to investors. By investing in these ETFs, you get exposure to a diverse set of companies from various industries. This diversity helps to reduce the risk of investing in specific stocks.
Because IVV and VOO are traded on major stock exchanges, they are easily traded throughout the trading day. These ETFs allow investors to purchase and sell shares at market prices, giving them flexibility and liquidity.
IVV vs VOO Key Differences
While IVV and VOO have many similarities, there are some key differences you'll want to be aware of:
1. Methodology of Weighting
The weighting algorithms used by IVV and VOO differ. IVV employs a market-cap-weighted methodology, which implies that the market capitalization of each company in the ETF determines its weight. On the other hand, VOO takes a similar methodology but also considers other criteria, such as liquidity and investability.
2. Industry Exposure
Sector exposure may differ slightly between IVV and VOO. While both ETFs strive to mirror the S&P 500, the weights assigned to various sectors may vary. These distinctions may impact the ETF's performance in particular market conditions.
3. Holdings Differences
Due to variances in their index replication procedures, IVV and VOO's holdings may differ slightly. The exact companies held by each ETF may vary significantly, but the overall goal of tracking the S&P 500 remains the same.
The top 10 holdings are almost exactly the same, but VOO holds Exxon Mobile in its top 10 and IVV holds Tesla in its top 10. These differences could be because Vanguard may not update its ETF has often as Blackrock. IVV reports holdings on a daily basis, while Vanguard does it monthly.
Performance Differences Between IVV vs VOO
1. Past Performance
While IVV and VOO seek to replicate the same index, their historical returns may fluctuate slightly due to expense ratios and tracking errors. Investors should evaluate their unique investing goals as well as the performance history of each ETF.
In looking at a 10 year return, IVV and VOO have been about the same in their performance. IVV has averaged about 11.94% and VOO has averaged 11.95%. It is a slight difference.
2. Error in Tracking
The difference in performance between an ETF and its underlying index is referred to as a tracking error. The tracking errors of IVV and VOO may be slightly different, which might alter the returns investors obtain in comparison to the performance of the S&P 500.
3. Dividend Yield
Due to differences in the distributions paid by the underlying equities, IVV and VOO can have slightly varying dividend yields. Investors seeking dividend income would have to study the dividend policy of each ETF.
IVV has a 1.58% yield compared to VOO having a yield of 1.57%. These are two quite similar yields that can allow the funds to have a similar performance over time.
1. Expense to Income Ratio
The expense ratios of IVV and VOO could differ. The annual fee imposed by the fund management to cover operating expenditures is represented by the expense ratio. Despite the fact that both ETFs have modest expense ratios, the difference in fees can influence long-term investment outcomes.
Looking at the expense ratios of both ETFs, you will find that both IVV and VOO have an expense ratio of 0.03%. That makes the expense of both ETFs a cost of $3 per $10,000 invested. When comparing IVV vs VOO in expense ratios it would be tie.
2. Additional Fees
Aside from the expense ratio, you should consider any additional fees for purchasing and selling IVV and VOO shares. Brokerage commissions and bid-ask spreads are examples of these expenses.
Which ETF Should You Choose?
IVV and VOO are popular ETFs that give investors exposure to the large-cap equities market in the United States. While both ETFs seek to replicate the performance of the S&P 500, they differ significantly in composition, performance, and fees. Before deciding between IVV and VOO, you must thoroughly assess the differences and your investment objectives.
It is best to pick one and start investing. The differences are marginal, and it is best not to waste too much time, just pick one and keep investing.
1. Which ETF is more suitable for long-term investors?
• The investor's demands and preferences influence the decision between IVV and VOO. Both ETFs provide exposure to the S&P 500, but there are differences in fees and composition to consider.
2. Is it possible to invest in both IVV and VOO?
• Yes, you can hold both IVV and VOO in your portfolios to diversify your exposure to the large-cap equities market in the United States.
3. Are there any tax consequences to investing in these ETFs?
• Investing in IVV and VOO may have tax implications. To understand the unique tax status of these ETFs, you should speak with a tax advisor.
4. How frequently are IVV and VOO holdings updated?
• IVV vs VOO holdings are normally updated on a regular basis to reflect changes in the underlying index. The precise frequency, however, may vary.
5. Can I use IVV or VOO to invest in overseas markets?
• IVV and VOO are primarily used to provide exposure to the stock market in the United States. Investors seeking worldwide market exposure may look into other ETFs or investing choices like VEA or VXUS, which provides exposure to foreign markets.
I’m Steve. I’m an English Teacher, traveler, and an avid outdoorsman. If you’d like to comment, ask a question, or simply say hi, leave me a message here, on Twitter (@thefrugalexpat1). Many of my posts have been written to help those in their journey to financial independence. I am on my journey, and as I learn more I hope to share more. And as always, thanks for reading The Frugal Expat.