SPY vs VOO: Which S&P 500 ETF is The Better Buy.

Where is a good place to put my money? I hear people saying. What is a good investment strategy? Usually, I would suggest a good index fund or index fund ETF. Where to start, and which one to choose? Look no further than SPY vs VOO if you want to get started. These are two of the best ETFs to choose from. The good thing is that you cannot wrong with choosing either. 

What is an ETF?

An ETF is an Exchange-traded fund. It works like a mutual fund but is traded on the open market like a stock. Many companies have been creating ETFs to create another type of mutual fund that they can sell to clients. They are a great way to make an investment portfolio done passively. 

When talking about ETFs, there are usually two types that people refer to. Those are the ETFs that are actively managed, and then there are the ETFs that are index funds. Most people talk about the ETFs that have been created out of an index fund like VTI is the ETF of VTSAX. The actively managed ETFs usually try to outperform the indexes, but in the long run, it is rare. 

There are other ETFs that are actively managed. Those tend to have higher expense ratios that can cost you more money in the long run. 

SPY vs VOO are two of the best ETFs you can go with to put in your investment portfolio.

Why SPY vs VOO?

Why these two ETFs (Exchange Traded Funds)? These two ETFs track the S&P 500 Index. They are comprised of the 500 largest companies in the U.S.A. These two ETFs have some of the most oversized market caps around, and they give you the ability to create an effective investing strategy. 

If you want to look at some numbers to see how these bad boys are doing, look no further than 2021. In 2021, the S&P 500 has returned an impressive 28.7%. On average, we see the stock market getting about 10%, and 2021 was just a great year. 85% of mutual fund managers failed to beat the S&P500 in 2021. So it is a safe bet to go with an index fund like SPY vs VOO.

Since these two ETFs track the same thing, they should be interchangeable or similar. These may follow the same index, but slight differences may help you sway one way or another. 

SPY: SPDR S&P 500 Trust Overview:

Looking at SPY, it is one of the oldest ETFs out there. This is the ETF most people will think about when they hear the word ETF. SPY was created by State Street in 1993. Therefore it holds as one of the most known and most liquid ETFs on the market. It is easy to trade this ETF, and it comes with a 0.09% expense ratio to help manage the fund. 

Past performances never mean that future performances will be the same, but it is a good indication of how this fund has performed over the past ten years. 

The index fund does a great job of exposure to the U.S's large-cap companies. Here are the top 5 sectors of the fund:

  • Technology (31.82%)
  • Financials (15.10%)
  • Consumer Discretionary (13.54%)
  • Healthcare (11.27%)
  • Industrials (10.83%)

The Top 10 companies that occupy 31.40% of SPY:

  1. Apple
  2. Microsoft
  3. Amazon
  4. Alphabet
  5. Tesla
  6. Nvidia
  7. Meta Platforms
  8. JP Morgan Chase
  9. Berkshire Hathaway
  10. Home Depot

On a ten-year average, the rate of return has been about 16.40%, which is pretty good looking at the stock market average of around 10% annually. So has done well for the past ten years. As the market continues to grow on this massive bull run, this ETF grows even more.

This is a popular fund that financial advisors may suggest as well. My father's ex-financial advisor told me about this ETF as I asked more about index funds. 

Looking at a good place to start investing, SPY offers a history of great returns. It provides low-cost at the cost of 0.09%, and you cannot go wrong with the best 500 companies on the U.S. stock market. 

VOO: Vanguard S&P 500 Index Fund ETF Overview

Vanguard created VOO as an ETF to VFIAX. Its inception was in 2010 and has averaged about 16.51% per year for the last ten years. The expense ratio is 0.03%, making it one of the cheapest ETFs on the market, bringing savings to your pockets. 

These are incredible numbers. As you can see, VOO is an excellent ETF that matches the S&P 500 at a low cost, and it can bring stability through a company like Vanguard. 

Warren Buffett is a great fan of this fund because it allows you to have exposure to the best of the best when talking about companies in the U.S.

The index fund does a great job of having exposure to the entire market. Here are the top 5 sectors of the fund:

  • Technology (31.82%)
  • Financials (15.10%)
  • Consumer Discretionary (13.54%)
  • Healthcare (11.27%)
  • Industrials (10.83%)

The Top 10 companies that occupy 31.40% of VOO:

  1. Apple
  2. Microsoft
  3. Amazon
  4. Alphabet
  5. Tesla
  6. Nvidia
  7. Meta Platforms
  8. JP Morgan Chase
  9. Berkshire Hathaway
  10. Home Depot

After looking at some of these numbers, you already see a slight difference between SPY vs VOO. They are both tracking the same index, but VOO is outshining SPY on a 10-year average of 0.09% due to the lower expense ratio. 

SPY vs VOO: The Similarities Between the Two

Track the S&P 500

Both track the S&P 500 Index. They are comprised of the top 500 largest companies in the U.S.A. Having this many companies allows them to have significant exposure to large-cap companies. Since the S&P 500 did so well this past year, the return on investment has reflected that. These two ETFs will also go up in value if the market goes up. 

Similar top 10 Companies

The top 10 companies in the index make up about 31% of the fund. These companies include Apple, Google, Amazon, Facebook, and other companies like JP Morgan Chase. These two funds have a large percentage into tech, with other companies rounding out the bottom ten consisting of banks and daily goods.

Diversification is key

These two ETFs are pretty diversified. They are into 500 different companies, and there is not a massive investment into one company over another. There is no 10% allocation into one single company or another. Yes, 31% is invested with the top 10, but many other companies help raise the ETF. 

Only Invest in Companies in S&P 500

They only invest in companies once they hit the S&P 500. This can be a negative since you have companies like Tesla that entered the S&P 500 on December 21, 2020, and the S&P 500 could not capitalize on the stock growth that had occurred in most of 2020. 

There are also no Small-cap companies that are in the ETF as well. These are all large-cap funds. 

These index funds are pretty similar. There are many similarities between these two index funds. If you are ever looking for a more rounded ETF or Index fund, you can look at VTI or VTSAX. They track the total stock market, giving more exposure to over 4000 different companies instead of the 500 in the S&P 500. 

The Differences Between SPY vs VOO:

Here are a couple of differences between SPY vs VOO.

The Expense Ratios

The Expense ratios are a big difference. SPY has an expense ratio of 0.09%, while VOO has an expense ratio of 0.03%. That is a difference of 0.06%. The higher the expense ratio, the lower the return for the investor and the more money for the management company. 

Costs may not matter much to you, but having a lower expense ratio can help improve a return. As you can see, VOO has a 0.09% better return than SPY over a 10-year average. It is minimum, but if you have $1,000,000 invested, that is a difference of an extra $900 every year. 

Management Companies

Investment Management is a bit different. The customers own Vanguard. It does not seek to make money for any shareholders. This is an important thing when you think about it. They are in the business to make the customer's money and not the shareholders.  

The shareholders own State Street. Its objective is to make sure they make money for their shareholders. When I see this, I have to wonder if they have my best interest or the shareholders that have the best interest at heart.

Liquidity

Liquidity is another thing. You can make better options and trades, and trade volume allows people to trade options much more accessible with SPY rather than VOO. SPY is one of the most traded ETFs out there. SPY is probably a better ETF to hold with a larger market cap if you are into ETF trading.

If you are looking to trade call options then it would be best to go with SPY. With the high volume of trades occurring, SPY will be a great asset to sell call options.

The Yield 

There is also a slight difference in yield. SPY has a yield of 1.30%, and VOO has 1.34%. They distribute their yields differently, with SPY having a much larger payout at the end of the year than VOO. VOO's dividend is usually spread out more equally throughout the year. 

SPY vs VOO: Which One Should You Choose?

The question of which ETF to choose is a hard one. My personal opinion would choose VOO. They are essentially the same. I would choose VOO because of several reasons. 

First, it has a lower expense ratio. SPY and VOO are both low-cost ETFs that can bring you excellent value, but costs can impact your investment over the long haul. 

Secondly, Vanguard is owned by the customers. They must make sure the investors are taken care of. By lowering costs, it helps the investors. The shareholders own State Street. That means they could raise the expense ratios to make more money for their shareholders. With that aspect looming over, I will choose VOO. I know that Vanguard is a company for its investors. 

It is up to you which one you would choose.

Final Thoughts:

Investing is never an easy task. There can be a lot of psychological barriers that may interrupt things like a bear market or even costs. The fear of missing out or even losing money can create different thoughts when coming to investing. 

If you want to start then choose one of these ETFs. SPY and VOO can do wonders for your portfolio. All you need is conviction in the U.S. economy. Look around you; if you see people on iPhones buying things on Amazon through Google, then chances are the American Economy is doing pretty well. 

Make a choice and choose which one is right for you. You cannot go wrong with choosing either. This is the start of a new adventure into investing. 

Which one would you choose? SPY vs VOO

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