VOO or SPY: Which Is the Better Investment?
Same index, same 500 stocks, nearly identical returns. VOO wins for long-term investors on cost; SPY wins for traders on liquidity. Here's how to pick.
Don't have time? Here's what you need to know:
- 1VOO and SPY track the same S&P 500 — same holdings, nearly identical pre-fee returns.
- 2VOO costs 0.03% versus SPY's 0.0945%, about $65 more per year per $100,000, and the gap compounds.
- 3SPY's only real edge is liquidity and options depth, which matter to traders, not long-term investors.
- 4Don't sell appreciated SPY in a taxable account to switch — redirect new money to VOO instead.
The Verdict Up Front
VOO and SPY both track the S&P 500 — the same roughly 500 large U.S. companies in the same weights — so their pre-fee returns are virtually identical year after year. The better fund depends entirely on how you use it.
For long-term, buy-and-hold investors, VOO is the better choice because it costs far less. For active traders and options users, SPY's unmatched liquidity justifies its higher fee. Neither owns a 'better' set of stocks; the difference is cost and structure, not holdings.
Cost: VOO Wins by 0.06% Every Year
VOO charges a 0.03% expense ratio; SPY charges 0.0945% — roughly three times as much. On a single year and a modest balance, that gap is small, but an expense ratio is charged every year on your entire balance, and the money it skims can no longer compound for you. Over decades on a growing balance, the cheaper fund essentially has to win.
Because both funds own the identical index, there's no offsetting reason for a long-term holder to pay SPY's higher fee. iShares' IVV also tracks the S&P 500 at 0.03%, making it a tie with VOO on cost. For buy-and-hold, default to whichever of VOO or IVV your broker makes convenient.
| VOO | SPY | |
|---|---|---|
| Issuer | Vanguard | State Street (SPDR) |
| Index | S&P 500 | S&P 500 |
| Expense ratio | 0.03% | 0.0945% |
| Annual cost per $100k | $30 | ~$95 |
| Structure | Open-end fund | Unit investment trust |
| Best for | Long-term holders | Traders / options |
Structure and Liquidity: Where SPY Differs
SPY launched in 1993 as the first U.S. ETF and is structured as a unit investment trust, an older format that holds dividends as cash until they're paid out quarterly rather than reinvesting immediately. That small 'cash drag,' plus the inability to lend securities, has historically caused SPY's total return to trail VOO's by slightly more than the fee gap alone. VOO is a modern open-end fund without those limitations.
SPY's genuine advantage is liquidity. It trades tens of millions of shares a day with the tightest spreads of any ETF and anchors the deepest options market in existence. For a trader or institution moving large orders, that depth is a real, measurable edge — but for someone buying a few hundred dollars at a time, it's invisible.
Important: Don't pick SPY for its liquidity unless you actually trade or use options. A long-term holder pays the higher fee every year and gets nothing back for it.
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Which Should You Buy?
If you're investing for the long term — retirement, automated monthly contributions, a brokerage account you'll hold for years — choose VOO (or IVV) and stop thinking about it. You get the same S&P 500 exposure at a third of SPY's cost. If you're an active trader or use options on the S&P 500, SPY's liquidity earns its higher fee for your use case.
One caveat: if you already own SPY in a taxable account with large gains, don't sell just to save 0.06% — the capital-gains tax would dwarf years of fee savings. Instead, switch off any automatic SPY purchases, send each new contribution into VOO, and leave the appreciated SPY shares to ride. Inside an IRA or 401(k), the switch is tax-free, so there's no reason not to move straight to the cheaper fund.
Frequently Asked Questions
Is VOO or SPY better?
For long-term buy-and-hold investors, VOO is better because it costs 0.03% versus SPY's 0.0945% while tracking the identical S&P 500 index. SPY is better only for active traders and options users who value its deeper liquidity. The two are otherwise nearly interchangeable in what they own and how they perform.
Do VOO and SPY hold the same stocks?
Yes. Both track the S&P 500, so they hold the same roughly 500 companies in nearly identical weights, led by the largest U.S. firms. Their portfolios are functionally the same; the differences are fees and fund structure, not holdings, which is why their pre-fee returns are virtually identical.
Why is SPY more expensive than VOO?
SPY was the first U.S. ETF, launched in 1993 under the older unit investment trust structure. State Street keeps its 0.0945% fee because SPY's unmatched trading liquidity keeps traders and institutions loyal regardless of cost. Vanguard undercuts it at 0.03% to win cost-conscious long-term investors, as does iShares with IVV.
Should I switch from SPY to VOO?
Inside an IRA or 401(k), yes — the trade is tax-free and trims about 0.06% off your annual cost. In a taxable account it usually isn't worth it: selling SPY shares that have appreciated triggers a capital-gains bill that tends to outweigh the fee you would save. The simpler fix is to keep the SPY shares, stop buying more, and direct fresh contributions into VOO from here on.
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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.