Choosing between SPY and VOO is a lot like picking between Coke and Pepsi. They’re both cola-flavored drinks from huge, reputable companies, and for most people, they taste almost identical. These two giant funds operate the same way: both let you invest in the 500 largest U.S. companies, known as the S&P 500. Yet, just like with those sodas, small differences exist that can have a surprisingly big impact on your wallet over time.
So when faced with the question of which is better, SPY or VOO, it’s easy to feel stuck. This is a common hurdle when choosing an S&P 500 index fund for beginners, but the answer is more straightforward than you think. While either choice is a solid start for your portfolio, picking the optimal one can save you thousands of dollars in fees throughout your investing lifetime—money that stays in your pocket and continues to grow.
Forget the complicated charts and financial jargon. This guide will focus on the single most important factor in the SPY vs. VOO performance comparison: cost. By understanding this one small detail, you will see why there is a clear winner for 99% of long-term investors.
First, What Are You Actually Buying? A Simple Guide to the S&P 500
Before you can pick a winner between SPY and VOO, it’s crucial to know what you’re actually buying into. Both of these are funds designed to track the S&P 500. Think of the S&P 500 as the “All-Star Team” of the American economy—it’s a list of 500 of the largest and most influential U.S. companies, from tech giants like Apple and Microsoft to household names like Johnson & Johnson.
An S&P 500 fund, known as an index ETF, acts like a convenient shopping basket that already contains a tiny piece of every single one of those 500 companies. Instead of facing the impossible task of buying 500 different stocks yourself, you can purchase just one share of a fund like SPY or VOO and instantly own a slice of the entire group.
This all-in-one approach gives you immediate diversification, which is simply the investing version of not putting all your eggs in one basket. If one company in the fund has a terrible year, its poor performance is cushioned by the other 499 companies that may be doing just fine. It’s a powerful way to reduce risk, which is why these are often considered some of the best ETFs for long-term investors. Since both funds offer this exact same benefit, we have to look closer to spot the real difference.
The Single Most Important Difference: How a Tiny Fee Can Cost You Real Money
If both funds buy you a piece of the same 500 companies, you might be wondering, “What’s the catch?” The main difference between VOO and SPY, and the one that matters most for the average investor, comes down to a tiny, almost hidden fee. This is the single most important factor in your decision.
This fee is called an expense ratio. Think of it as a small annual maintenance charge for the service of having your money managed. It’s automatically taken out of your investment, so you never see a bill. Just like a tiny, slow leak, it might not seem like a big deal at first, but it can drain a surprising amount of value from your account over time.
To put that in perspective, VOO has an expense ratio of just 0.03%, while SPY’s is about 0.09%. While both numbers are incredibly small, one is three times larger than the other. Here’s what that means for your wallet:
- On a $10,000 investment in VOO, you’d pay just $3 per year.
- On that same $10,000 in SPY, you’d pay $9 per year.
For the exact same S&P 500 companies, VOO is simply cheaper to own. The benefits of VOO’s lower expense ratio are clear: more of your money stays in your pocket, working for you. But does a difference of just $6 a year on a $10,000 investment truly matter in the long run? The answer might surprise you.
See the Difference: How VOO’s Lower Cost Adds Up Over 30 Years
At first glance, a difference of just a few dollars a year might seem insignificant—hardly worth worrying about. However, this misses the quiet, powerful force of compounding. When you pay a higher fee, it’s not just the fee itself that you’re losing; you are also losing all the growth that money could have generated for you, year after year. That tiny leak gets bigger over time. This is where the real benefit of VOO’s lower expense ratio shines, especially for long-term investing.
Let’s run the numbers on that same $10,000 investment over a 30-year period, assuming an average market return. Because of its higher fee, the money in SPY would grow to be worth around $1,200 less than the exact same investment in VOO. That’s a significant difference, created entirely by a fee that started at just $6 per year. That lost $1,200 is money that could have been yours, but instead, it was eaten away by slightly higher costs.
This is the power of keeping your investing costs razor-thin. When you’re considering whether VOO or SPY is better for a Roth IRA or another retirement account, that long-term cost savings makes a compelling case. Choosing the fund with the lower fee is one of the easiest ways to ensure more of your hard-earned money stays in your pocket, making it arguably the best S&P 500 ETF for most long-term investors. But you may have heard SPY is more popular with professional traders. Let’s see why that is, and why it likely doesn’t matter for you.
The Pro-Trader Metric: Why SPY’s “Liquidity” Doesn’t Matter for Your IRA
If VOO is cheaper, you might wonder why SPY is still so incredibly popular. The answer comes down to one key advantage that only matters to a small group of professionals: high-frequency traders. This advantage is called “liquidity,” which is just a financial term for how quickly and easily you can buy or sell something in massive quantities without nudging its price.
Think of it like this: SPY is the most popular model of a Toyota on the market. There are millions out there, and you can buy or sell one in an instant because there’s always someone on the other side of the transaction. VOO is like a Honda Accord—also incredibly popular and easy to sell. For a professional needing to trade millions of dollars in a split second, that tiny edge for the Toyota (SPY) matters. This high level of SPY liquidity for day trading is its main claim to fame.
However, for anyone investing for the long haul, this difference is completely irrelevant. You aren’t trading millions of dollars every few minutes. Selling your VOO shares will be just as easy as selling SPY shares when you need the money. This part of the VOO vs. SPY breakdown is often misunderstood; VOO is one of the best alternatives to the SPY ETF because its liquidity is more than sufficient for 99% of investors, allowing them to focus on lower costs. This difference in trading volume actually stems from a subtle distinction in how the funds are built.
Under the Hood: The Minor “Structural” Difference Between SPY and VOO
That small difference in how the funds are built comes down to age and technology. SPY was the very first ETF, launched back in 1993. It was built using an older legal framework called a Unit Investment Trust. Vanguard’s VOO, arriving much later in 2010, was built on a more modern and slightly more flexible structure. This difference in the Vanguard vs. State Street ETF structure is like comparing a reliable 90s car to a brand-new one—both get you there, but the newer model has some small efficiencies built in.
For investors, the most notable effect of this structural difference is how dividends are handled. When the 500 companies in the index pay out dividends, SPY must hold them as cash and can only distribute them to its shareholders quarterly. In contrast, VOO’s modern setup allows it to immediately reinvest those dividends back into the fund. This means your money is put back to work faster, preventing tiny bits of cash from sitting on the sidelines.
Ultimately, is this a dealbreaker? Not at all. This subtle inefficiency for SPY might slightly impact the effective SPY vs. VOO dividend yield over the long run, but it’s a very minor point compared to the more significant difference in expense ratios. For most people, it’s just one more small checkmark in VOO’s favor. But SPY and VOO aren’t the only two players in this game. There’s another giant from BlackRock that’s worth a look.
What About IVV? A Quick Look at the Third S&P 500 Giant
While the spotlight often shines on SPY and VOO, they aren’t the only options on the shelf. The competition for your investment dollar is fierce, which is great news for you. There’s another heavyweight contender that’s just as impressive as VOO: the iShares CORE S&P 500 ETF, better known by its ticker, IVV. Run by BlackRock, one of the world’s largest investment managers, IVV is designed with the exact same goal in mind—to give you a low-cost way to own the S&P 500.
So, how does it stack up? When it comes to the single most important factor for most investors—cost—it’s a perfect match for VOO. This makes IVV an excellent alternative to the SPY ETF for anyone focused on minimizing fees over the long run. For a long-term investor, the choice between VOO and IVV often comes down to personal preference or which one your brokerage makes easier to buy.
This simple VOO vs. IVV vs. SPY breakdown on annual fees tells the whole story:
- VOO (Vanguard): 0.03%
- IVV (iShares): 0.03%
- SPY (State Street): 0.09%
Because their costs are identical, both VOO and IVV are among the best ETFs you can choose for building wealth over time. They are two top-tier, near-interchangeable products from highly reputable companies.
The Final Verdict: For 99% of Investors, VOO Is the Smarter Choice
Before today, the choice between SPY and VOO might have seemed like insider jargon—a confusing final hurdle in your decision to invest. You can now confidently see past the noise. You’ve learned to decode the single most important difference between them and can make a choice based not on hype, but on simple math.
For the vast majority of us, the answer is refreshingly clear. The best S&P 500 ETF for long-term investing is the one that charges you less. With its lower expense ratio, VOO allows more of your money to stay invested and grow over time, making it the straightforward winner for building wealth.
This principle is your simple guide on how to choose between index ETFs. Whether you’re wondering if VOO or SPY is better for a Roth IRA or a taxable account, the goal is the same: keep your costs low. The technical reasons a day trader might lean toward SPY are completely irrelevant to your journey.
Ultimately, the smartest financial move you made wasn’t picking one fund over the other. It was deciding to invest in a low-cost, diversified slice of the market in the first place. Choosing VOO is simply the final optimization—a savvy move that ensures more of your own money keeps working for you. You’re no longer just guessing; you’re making an informed decision, and that’s what successful investing is all about.
