Is SPY a Good Investment?
SPY tracks the S&P 500 and offers unmatched liquidity, but long-term holders pay roughly triple the fee of VOO or IVV for exposure to the exact same index.
Don't have time? Here's what you need to know:
- 1SPY tracks the S&P 500 and is the most liquid ETF in the world, with the deepest options market.
- 2Its 0.0945% expense ratio is roughly three times VOO's and IVV's 0.03% for the exact same index.
- 3SPY also carries a small structural cash drag as a unit investment trust, slightly trailing VOO's total return.
- 4Choose SPY only if you trade or use options; long-term holders should default to VOO or IVV instead.
What SPY Is and Why It's Famous
SPY is State Street's SPDR S&P 500 ETF — the first U.S.-listed ETF, launched in 1993, and still the most heavily traded ETF in the world. Like VOO, it tracks the S&P 500, so it holds the same roughly 500 largest U.S. companies and delivers nearly identical pre-fee returns.
What sets SPY apart is liquidity, not its holdings. It trades tens of millions of shares a day with razor-thin bid-ask spreads and anchors the deepest options market of any ETF. That makes it the default instrument for traders, institutions, and anyone using options on the S&P 500.
The Catch: A Fee Three Times Higher Than VOO
SPY's expense ratio is 0.0945%, versus 0.03% for VOO and IVV — roughly three times as much for the exact same index. On $10,000 that's about $9.45 a year instead of $3, which sounds trivial. But the fee is charged every year on your whole balance, and the money it skims can no longer compound for you.
Over a multi-decade holding period on a growing balance, that recurring drag quietly compounds into a meaningful gap. Since SPY and VOO own the same stocks, the cheaper fund essentially has to win over time — the only question is by how much.
| SPY | VOO | IVV | |
|---|---|---|---|
| Issuer | State Street | Vanguard | iShares |
| Index | S&P 500 | S&P 500 | S&P 500 |
| Expense ratio | 0.0945% | 0.03% | 0.03% |
| Annual cost per $10k | ~$9.45 | $3 | $3 |
| Best for | Traders, options | Long-term holders | Long-term holders |
A Small Structural Drag, Too
Beyond the fee, SPY carries a minor structural handicap. It's legally a unit investment trust, a 1990s format that requires it to hold dividends as cash until it pays them out quarterly rather than reinvesting them immediately. In rising markets that 'cash drag' costs a sliver of return, and the structure also prevents the securities lending that newer funds use to offset costs.
None of this is dramatic — over a decade it's a fraction of a percent — but it all points the same direction. VOO and IVV, as modern open-end funds, reinvest dividends continuously and lend securities, so their total returns have historically edged SPY's by slightly more than the raw fee gap alone.
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Good for Whom — and Who Should Pick VOO Instead
SPY is a genuinely good investment for active traders, options users, and institutions that value its unmatched liquidity and tight spreads. If you trade frequently or need to move large orders without nudging the price, SPY's depth is a real, measurable edge worth its fee.
For a long-term buy-and-hold investor dollar-cost averaging into retirement, though, SPY is the wrong default — you'd pay triple the fee forever for liquidity you'll never use. Choose VOO or IVV instead. One caveat: if you already hold SPY in a taxable account with big gains, don't sell just to switch — the capital-gains tax would dwarf the fee savings. Redirect new contributions to VOO instead.
Important: Don't choose SPY for its liquidity unless you actually trade or use options. A long-term holder pays that premium every year and gets nothing back for it.
Frequently Asked Questions
Is SPY a good investment for long-term investors?
It's a solid S&P 500 fund, but it's not the best choice for long-term holders because its 0.0945% fee is roughly triple VOO's and IVV's 0.03% for the identical index. The exposure is excellent; the cost is unnecessarily high. Long-term buy-and-hold investors are usually better served by VOO or IVV.
Why is SPY more expensive than VOO if they're identical?
SPY arrived in 1993 as State Street's flagship and was built as a unit investment trust, the older format ETFs used before open-end structures took over. State Street has left the 0.0945% fee in place because SPY's unrivalled trading depth keeps active traders and institutions loyal no matter the cost, while Vanguard and iShares deliberately priced VOO and IVV at 0.03% to win the cost-sensitive buy-and-hold crowd.
Should I sell my SPY to buy VOO?
In a tax-advantaged account like an IRA or 401(k), yes — switching is free and saves you about 0.06% a year. In a taxable account, the answer is usually no, because selling SPY shares that have risen in value crystallises a capital gain whose tax bill typically swamps the modest fee you would save. The cleaner move is to stop adding to SPY, point fresh contributions at VOO, and let the existing SPY shares sit untouched.
Is SPY good for trading and options?
Yes — this is where SPY genuinely shines. It's the most liquid ETF in the world, with the tightest spreads and the deepest options market. Active traders, options writers, and institutions benefit from that depth, which is the main reason SPY remains so popular despite its higher fee.
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Alex Harrington
CFA Level II Candidate, Finance & Economics
Alex Harrington is an independent ETF researcher and personal finance writer with over 8 years of experience analyzing exchange-traded funds. A CFA Level II candidate with a background in economics, Alex has reviewed 800+ ETFs and helped thousands of beginners build their first investment portfolios through clear, jargon-free education.
This content is for educational purposes only and does not constitute financial advice. Past performance does not guarantee future results. Consult a licensed financial advisor before making investment decisions.