Comparing VOO and SPY: What Long-Term Investors Should Know
When it comes to investing in large-cap U.S. equities, the Vanguard S&P 500 ETF (VOO) and the SPDR S&P 500 ETF Trust (SPY) have become household names. Both track the S&P 500 Index, providing investors with exposure to a diversified selection of 500 of the largest public companies in the United States. However, despite their similarities, some nuanced differences can significantly impact long-term investors. Let’s dive deeper into these two ETFs to understand how they differ across various metrics.
Snapshot: Cost & Size
Key Metrics
| Metric | SPY | VOO |
|---|---|---|
| Issuer | SPDR | Vanguard |
| Expense Ratio | 0.09% | 0.03% |
| 1-Year Return | 16.3% (as of Jan. 1, 2026) | 16.3% |
| Dividend Yield | 1.06% | 1.12% |
| Beta (5Y monthly) | 1.00 | 1.00 |
| AUM | $701 billion | $1.5 trillion |
Insights:
At first glance, expense ratios and dividend yields emerge as key distinctions. VOO boasts a lower expense ratio at 0.03%, while SPY stands at 0.09%. This discrepancy means that VOO is a more cost-effective option for fee-conscious investors. For instance, for every $10,000 invested, a VOO investor pays $3 in fees annually compared to the $9 faced by SPY investors.
Beyond fees, VOO also achieves a slightly higher dividend yield of 1.12%, compared to SPY’s 1.06%. Although the difference seems minor, over time, these factors can compound to make a significant difference in total returns, especially for long-term holders.
Performance & Risk Comparison
Performance Metrics
| Metric | SPY | VOO |
|---|---|---|
| Max Drawdown (5 Years) | -24.5% | -24.5% |
| Growth of $1,000 over 5 Years | $1,824 | $1,825 |
Insights:
When it comes to historical performance metrics, both VOO and SPY provide nearly identical outcomes. They demonstrate the same max drawdown of -24.5% and show comparable growth—$1,824 for SPY and $1,825 for VOO over a five-year period. This tells investors that, from a performance perspective, you’re not likely to go wrong with either option if you’re focused solely on tracking the S&P 500.
What’s Inside?
A deeper look into the underlying compositions of both ETFs reveals they mirror the S&P 500 closely.
Portfolio Composition
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VOO: Holds 505 stocks with significant allocations in technology (37%), financial services (13%), and consumer cyclical (11%). Major holdings include powerhouses like Nvidia, Apple, and Microsoft.
- SPY: While nearly identical, it also maintains similar top holdings with a matching sector allocation, effectively replicating VOO’s framework.
Both funds eschew unconventional tracking strategies or leverage, solidifying their legitimacy as options for long-term investing.
What This Means for Investors
Investors considering VOO and SPY will mainly face a choice driven by fees, yield, and liquidity. Given the information discussed, VOO holds a slight advantage in these areas:
-
Lower Expense Ratio: Investing in VOO guarantees lower fees, which is hugely beneficial for long-term portfolios. Lower costs over years can compound into significant savings.
-
Slightly Higher Dividend Yield: While both funds offer modest dividend yields, VOO’s superior yield can provide additional income, especially for larger investors.
- Liquidity and AUM: While VOO’s larger assets under management could be advantageous for liquidity, for most long-term investors, this factor may not be a deal-breaker.
If you’re an investor already tied to SPDR products, the familiarity might make sticking with SPY easier. But for those looking to minimize costs and maximize income, VOO comes out on top in numerous facets.
Glossary
- ETF: Exchange-traded fund that holds a basket of assets and trades on stock exchanges like a stock.
- Index Fund: Fund designed to replicate the performance of a specific market index, such as the S&P 500.
- S&P 500 Index: A benchmark index of 500 large U.S. companies, widely used to represent the overall U.S. stock market.
- Expense Ratio: Annual fund operating costs expressed as a percentage of assets, deducted from investor returns.
- Dividend Yield: Annual dividends paid by a fund or stock divided by its current price, shown as a percentage.
- Assets Under Management (AUM): Total market value of all assets a fund or investment manager oversees.
- Beta: Measure of an investment’s volatility relative to the overall market; 1.00 moves roughly in line with the market.
- Max Drawdown: Largest peak-to-trough decline in value over a period, indicating the worst-case loss.
- Total Return: Investment performance that includes price changes plus all dividends and distributions, assuming they are reinvested.
- Sector Weighting: Percentage of a fund’s assets invested in specific industries.
- Leverage: Use of borrowed money or derivatives to amplify investment exposure, which can increase both gains and losses.
- Tracking: How closely an index fund or ETF matches the performance of its target index over time.
In summary, while VOO and SPY both track the S&P 500 effectively, VOO presents slight advantages worth considering for those committed to long-term investment strategies.
