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VOO vs SPY: Which Is the Better S&P Indexed ETF?

Are you looking to invest in an S&P-indexed exchange-traded fund? VOO and SPY are two key ETFs offered today.

VOO is Vanguard’s S&P 500 index-tracking ETF, while SPY is an S&P 500-indexed ETF offered by State Street Global Advisors. 

SPY stands out as the first US ETF listed on a national stock exchange and is one of the most traded ETFs in the world. Vanguard offers VOO, one of the largest brokerage companies in the world, known for its easy, low expense ratios and easy investment platform. 

In this post, we’ll compare VOO and SPY’s diversification, performance, fees, and tax efficiency to help you decide which one is right for you.

 

What is the S&P 500 Index?

Before we compare VOO vs. SPY, let’s first define the S&P 500 index.

In simple terms, the S&P 500 index is the index that tracks 500 of the largest publicly traded companies in the US. In this way, the S&P 500 is a US large-cap index.

This index includes both stocks listed on the NYSE and NASDAQ exchanges and it represents about 80% of the value of the US stock market. It is widely used as a benchmark by US investors to define the health of the overall stock market and for investors to compare their performance to.

 

What is VOO?

The Vanguard 500 Index Fund (VOO) is Vanguard’s S&P 500 index-tracking ETF offering. It is the ETF alternative to Vanguard’s VFIAX, which is a mutual fund.

VOO’s main objective is to generate similar overall returns as the market using the S&P 500 as its index. The ETF is inherently diversified and is generally considered safer than holding individual stocks within an index.

 

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What is SPY?

The SPDR S&P 500 ETF Trust (SPY) is an exchange-traded fund offered by State Street Global Advisors which tracks the S&P 500 Index. SPY is often referred to as the original S&P 500 ETF because it was the first US ETF traded on national exchanges. It was created in 1993 and still remains one of the most traded ETFs in the world today.

 

SPY vs. VOO Summary Table

 

SPYVOOEdge
Fund TypeETFETFSplit Decision
DiversificationS&P 500 IndexS&P Index TrackingSplit Decision
Inception Date19932010Slight Edge to SPY
Number of Holdings503505Tie
Risk RatingModerateModerateTie
Minimum Investment$25$1.00VOO
Expense Ratio0.09%0.03%VOO
Tax EfficiencyETFs generally are more tax-efficientVanguard’s patented process makes ETFs and mutual funds equivalent.Slight Edge to VOO
Tax Loss HarvestingFunds must settle and may need 1-2 days to be available for reinvestmentFunds must settle and may need 1-2 days to be available for reinvestmentTie
Trading & LiquidityDaily trading during Market HoursDaily trading during Market HoursTie
Performance-18.19% in 2022-18.15% in 2022Slight Edge to VOO
Dividend Yield1.53% in 20231.57% in 2023Slight Edge to VOO

 

SPY vs VOO: Which is better?

 

Diversification – Tie

VOO and SPY are very similar in their diversification strategies. That means you can expect the two to generate similar portfolios with similar holdings and industry diversification.

While they do have the same goal, VOO and SPY approach their diversification strategy differently.

Below is the portfolio breakdown for both VOO and SPY by sector.

Keep in mind that the exact portfolio composition will change on a daily, weekly, and monthly basis as the S&P 500 fluctuates, and both ETFs make adjustments.

 

IndustrySPYVOO
Information Technology28.30%27.50%
Health Care12.99%13.40%
Financials12.77%12.70%
Consumer Discretionary10.65%10.70%
Communication Services8.70%8.90%
Industrials8.29%8.30%
Consumer Stables6.47%6.60%
Energy4.53%4.70%
Materials2.40%2.40%
Real Estate2.37%2.40%
Utilities2.50%2.40%
Multi Sector0.04%0.00%

Source: SPYVOO

 

From the table above, you can see that SPY and VOO have very similar portfolio breakdowns by industry. Overall, the easy industry is within less than 1% of each other, with most being within 0.50% of one another

Likewise, we can look at each fund’s top 10 holdings to see how they differ.

 

CompanySPYVOO
Apple Inc.7.14%6.96%
Microsoft Corp.7.`14%6.49%
Amazon.com Inc.3.44%3.19%
NVIDIA Corp2.86%2.97%
Alphabet Inc. A2.09%2.15%
Alphabet Inc Class C1.80%1.84%
Tesla Inc C1.58%1.91%
Meta Platforms Inc Class A1.90%1.85%
Berkshire Hathaway Inc Class1.77%1.77%
Exon Mobile Corp1.30%
UnitedHealth Group Inc1.41%1.30%
Total29.72%30.43%

Source: SPYVOO

 

From the table above, you can see that both SPY and VOO hold 9 of the same companies in their top 10 holdings.

 

 

They differentiate with only the 10th and smallest companies. Specifically, VOO holds Exon Mobile, and SPY holds UnitedHealth.

The top 10 holdings account for approximately 30% of their portfolios. With SPY top 10 accounting for 29.72% and VOO accounting for 30.43%

Overall, SPY and VOO offer the same level of diversification by both using the S&P 500 as an index for their diversification strategy.

 

Minimum Investment – Tie

Both VOO and SPY have a minimum investment of $1 to purchase. Since these are both ETFs, they can be traded on fractional shares, allowing for even the smallest investment.

To invest in SPY with SSGA, investments must start at $25. However, you can find investment minimums as low as $1 for SPY relatively quickly, as SPY is one of the most popular ETFs on the market, offered by most brokerage firms.

Investing in VOO or SPY will give you the advantage of being able to enter at any investment level.

 

Expense Ratio – VOO

Since SPY has an expense ratio that is three times higher than VOO. Specifically, VOO, has an expense ratio of 0.03%, while SPY has an expense ratio of 0.09%.

In general, Vanguard ETFs and mutual funds are hard to beat regarding expense ratios. They are known for having some of the lowest expense ratios compared to market averages.

Choosing VOO over SPY can save you 66% on your annual costs for the same investment amount.

 

Trading and Liquidity – Tie

VOO and SPY have the same trading and liquidity characteristics since they are both ETFs.

Investors can buy and sell ETFs throughout the day at any time during market hours. This is not the case with mutual funds, which are only traded at the end of the day based on Net Asset Value (NAV).

ETF’s trading flexibility doesn’t come without drawbacks, though – they typically trade at prices slightly different from their NAV. This difference is called a bid-ask spread.

ETFs offer an advantage to investors who trade daily or change positions frequently. Since they can trade throughout the day, whereas mutual funds, you have to wait until the day is closed.

 

Tax Efficiency – Slight Edge to VOO

 

When comparing two different investment options, it’s essential to consider the tax implications and not only the returns they generate. The tax implications of an investment can have a significant impact on which investment generates higher after-tax returns.

Generally, ETFs will have a slight edge from a tax efficiency perspective. ETFs tend to distribute comparatively fewer capital gains to shareholders – these same gains are simply more challenging to manage efficiently from a mutual fund.

Since both VOO and SPY are ETFs, they offer the same tax advantages and efficiencies, but we can take a look at their after-tax performance to determine which has a smaller tax impact.

 

1-year3-Year5-Year10-year
VOOSPYVOOSPYVOOSPYVOOSPY
Before Tax21.57%21.45%10.11%10.01%9.88%9.77%11.87%11.77%
After Tax21.09%20.78%9.70%9.56%9.43%9.30%11.38%11.26%
Difference0.48%0.67%0.41%0.45%0.45%0.47%0.49%0.51%

 

From the table above, we can see that SPY consistently generates a higher tax burden compared to VOO. That said, that tax burden is smaller at a larger time period with only a 0.02% difference over ten years but a 0.22% difference over a year period,.

This gives VOO a slight edge when it comes to tax efficiency.

 

Tax Loss Harvesting – Tie

As ETFs, both SPY and VOO have the same rules and regulations.

Tax-loss harvesting is a strategy that involves selling investments at a loss to offset gains (and up to $3,000 in ordinary income). Tax-loss harvesting only matters in taxable investment accounts since you aren’t taxed on capital gains in tax-deferred accounts. While this strategy can be implemented using any type of investment (stocks, ETFs, mutual funds, or other property), mutual funds have an advantage because of how they are traded.

When you sell an ETF, you’ll have to wait for the funds to settle before reinvesting the proceeds. You may have to wait one or two days before you have access to the funds, which is commonly referred to as T+2.

If you prefer the tax-loss harvesting rules of a mutual fund, opting for a similar S&P-indexed mutual fund might be a better option. VOO offers a mutual fund alternative, VFIAX, that has an investment minimum of $3,000.

 

Performance & Dividends – Slight Edge to VOO

The performance of an investment option is often one of the most critical aspects investors consider. While VOO and SPY have similar investment approaches, they produce different performance results.

The table below shows the total annual returns between VOO and SPY.

 

Total Returns by NAV
YearSPYVOODifference
2022-18.17%-18.15%-0.02%
202128.75%28.66%0.09%
202018.37%18.35%0.02%
201931.22%31.46%-0.24%
2018-4.56%-4.42%-0.14%
201721.70%21.78%-0.08%
201612.00%11.93%0.07%
20151.25%1.35%-0.10%
201413.46%13.63%-0.17%

 

As the table above shows,  VOO outperformed SPY in 6 of 9 previous years. In those six years, VOO outperformed SPY by an average of 0.13%. While this is small, it gives VOO a slight advantage regarding annual total returns.

 

The performance advantage becomes more apparent when looking at cumulative returns. In the table below, you can see that VOO consistently outperforms SPY by an average of 0.10% over all time periods.

 

Cumulative Returns by NAV
YearSPYVOODifference
1-Yr21.45%21.57%-0.12%
3-Yr10.01%10.11%-0.10%
5-Yr9.77%9.88%-0.11%
10-Yr11.77%11.87%-0.10%

 

Overall, investing in VOO will likely generate slightly higher returns over all time periods, giving it the advantage in total returns performance.

Further, VOO consistently outperforms SPY’s dividend yield performance (see table below). VOO outperforms SPY in dividend yield by an average of 0.04%. Although small, it can be meaningful when trying to maximize returns.

 

YearSPY VOODifference
20231.53%1.57%-0.04%
20221.47%1.50%-0.03%
20211.33%1.36%-0.03%
20201.80%1.84%-0.04%
20191.83%1.94%-0.11%
20181.79%1.80%-0.01%
20171.89%1.89%0.00%
20162.08%2.06%0.02%
20151.94%1.97%-0.03%
20141.83%1.84%-0.01%
20131.88%1.91%-0.03%

 

Overall, in terms of both total returns and dividend yield performance, VOO has a consistent slight edge over SPY.

 

VOO vs SPY: Where Should You Invest?

VOO and SPY are mutual funds offered by different brokerage companies that aim to generate returns similar to the S&P 500. As a result, they have a very similar portfolio diversification and risk rating.

But there are some key differences to consider. First, VOO has a lower investment expense ratio compared to SPY.

Also, while VOO and SPY have the same tax efficiencies when comparing their after-tax returns, VOO generates a lower tax burden than SPY across all time periods.

Finally, VOO also outperformed SPY in both total returns and dividend yield. While the difference in performance might be small, the consistent outperformance across the majority of years, as well as cumulative time periods, give VOO the advantage.

 



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