SPY vs. IVV vs. VOO: Which S&P 500 ETF Should You Choose?
When it comes to investing in the S&P 500, you’ve got options—three big ones, to be precise. SPY, IVV, and VOO are the heavyweights in the S&P 500 ETF space. Each tracks the same index, but they’re not exactly identical. So, how do you decide which one is right for you? Let’s break it down.
Meet the Contenders
- SPY (SPDR S&P 500 ETF Trust)
- Launched in 1993, SPY was the first ETF ever created, making it the original trailblazer in the ETF world.
- Managed by State Street Global Advisors, it’s also the largest and most traded S&P 500 ETF.
- IVV (iShares Core S&P 500 ETF)
- Managed by BlackRock, IVV debuted in 2000. It’s a close competitor to SPY but is known for its slightly lower expense ratio.
- VOO (Vanguard S&P 500 ETF)
- Launched in 2010, VOO is the youngest of the three but has quickly gained popularity, thanks to Vanguard’s reputation for low fees and investor-friendly practices.
Key Differences
1. Expense Ratios
The expense ratio is a fee you pay to own the ETF, and it can have a big impact on your returns over time.
- SPY: 0.09% (higher than its competitors)
- IVV: 0.03% (low cost)
- VOO: 0.03% (tied with IVV for the lowest fee)
If keeping costs down is your top priority, IVV and VOO have a clear edge over SPY.
2. Liquidity and Trading Volume
SPY is the most liquid ETF in the world, with massive trading volumes every day. This makes it ideal for active traders who want tight bid-ask spreads and quick execution.
- SPY: Best for frequent trading.
- IVV and VOO: Still very liquid, but less so than SPY. Better suited for buy-and-hold investors.
3. Dividend Structure
All three ETFs distribute dividends from the companies in the S&P 500, but SPY’s dividend structure is slightly different. It holds dividends in cash before paying them out, while IVV and VOO reinvest dividends into the fund until payout.
- SPY: Dividends are held in cash, which could result in slightly lower returns.
- IVV and VOO: More efficient dividend reinvestment.
4. Ownership Costs
Beyond the expense ratio, SPY has a unit trust structure that makes it less tax-efficient compared to IVV and VOO. This could be a consideration for long-term investors looking to minimize taxes.
Similarities
While there are differences, it’s worth noting that SPY, IVV, and VOO all aim to do the same thing: track the S&P 500.
- They hold nearly identical portfolios of the same 500 companies.
- Their performance is almost indistinguishable over the long term.
- All three are widely respected and trusted by investors.
Pros and Cons
| ETF | Pros | Cons |
|---|---|---|
| SPY | Best liquidity, great for traders | Higher fees, less tax-efficient |
| IVV | Low fees, tax-efficient | Slightly lower liquidity than SPY |
| VOO | Low fees, Vanguard’s investor-friendly reputation | Slightly lower liquidity than SPY |
Which One Should You Choose?
- If You’re an Active Trader: SPY is the clear choice, thanks to its unmatched liquidity and trading volume.
- If You’re a Buy-and-Hold Investor: IVV and VOO are better options because of their lower expense ratios and tax efficiency.
- If You Love Vanguard: VOO might be your favorite, especially if you already use Vanguard for other investments.
- If You Want the Original: SPY has history on its side and remains a trusted name in the ETF world.
The Bottom Line
At the end of the day, you can’t go wrong with SPY, IVV, or VOO if you’re looking to invest in the S&P 500. They’re all reliable, well-established ETFs that give you exposure to 500 of the biggest U.S. companies.
The differences come down to cost, tax efficiency, and how you plan to use the ETF. For most long-term investors, IVV and VOO have a slight edge because of their lower fees. But if you value liquidity or just want the “OG” ETF, SPY is still a strong contender.
No matter which one you choose, you’ll be investing in a fund that’s stood the test of time.
