Beginner’s Must-Read: Complete Breakdown of VOO, IVV, and SPY—the Three Major S&P 500 ETFs

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When investing in an S&P 500 index fund, your choices are actually very clear. For a long-term hold strategy, VOO or IVV is the better option because of their lower management fees. For frequent traders, SPY dominates with its unparalleled liquidity.

As over 60% of investors plan to shift capital from individual stocks and mutual funds to ETFs, understanding the core differences between these three can help you make the decision that best aligns with your investment goals.

Key Takeaways

• VOO and IVV have very low expense ratios, making them suitable for long-term investing.
• SPY has extremely high trading volume, ideal for investors who trade frequently.
• Long-term investors choosing VOO or IVV can save significant fees.
• Short-term traders choosing SPY can execute trades more quickly.
• Which ETF to choose depends on your investment plan.

The Three Major S&P 500 Index Funds: Core Metrics Comparison

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To make an informed choice, you first need to understand how these three ETFs perform on key metrics. Although they all track the same index, there are significant differences in some core characteristics.

Quick Overview of Key Metrics

The table below visually presents the core data for VOO, IVV, and SPY. You can quickly compare their issuers, fees, scale, and trading activity.

Data as of 2025; AUM is estimated and for reference only.

It is worth noting that SPY is the world’s first ETF with the longest history. Its creation pioneered an entirely new investment era.

Fees vs. Liquidity: The Core Decision Divide

Looking closely at the table, you will find the key decision divide lies in expense ratio and liquidity.

• Cost: VOO and IVV both have an expense ratio of 0.03%. SPY’s is 0.09%. This means investing in VOO or IVV costs only one-third of SPY annually.
• Trading Liquidity: SPY’s average daily volume far exceeds the combined total of VOO and IVV. This means it has excellent depth and extremely tight bid-ask spreads.

Core Decision Point Your choice essentially involves a trade-off between “lower long-term holding costs” and “ultimate trading liquidity.” Do you want to maximize long-term returns, or do you need the best short-term trading capability? This question will directly determine which S&P 500 index fund is more suitable for you.

In the following sections, we will dive deeper into how these two factors impact your investment returns.

Long-Term Investing: The Cost Advantage of VOO and IVV

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If you are a “buy and hold” investor focused on the future and planning to hold for the long term, cost is the most important consideration in your decision-making. In the S&P 500 index fund arena, VOO and IVV, with their extremely low fees, offer you an unmatched cost advantage.

Expense Ratio: The Silent Killer of Long-Term Returns

Although expense ratios seem insignificant, they are like a tiny leak in a boat—over time, they significantly erode your long-term returns. VOO and IVV both have an 0.03% expense ratio, while SPY is 0.09%. This means choosing VOO or IVV costs only one-third of SPY annually.

Let’s quantify this difference and its huge impact under compounding through a specific example.

Calculation Example: Impact of Fees on a 20-Year Investment

Assume you make a one-time investment of $100,000 and hold for 20 years, with an annual market return of 10%. We only consider the impact of expense ratios:

ETF	Annual Expense Ratio	Estimated Cumulative Fees Over 20 Years	Estimated Account Value After 20 Years
VOO / IVV	0.03%	~$1,900	~$670,800
SPY	0.09%	~$5,700	~$667,000

Note: This is a simplified calculation, excluding dividends and other factors.

From the table, you can clearly see that a mere 0.06% annual fee difference brings you nearly $3,800 in extra returns after 20 years. This money comes entirely from making the right choice, without taking any additional risk.

Vanguard experts also emphasize that while trading costs matter for short-term traders, for long-term investors, expense ratio is the decisive variable in total holding costs. A study from the Tippie College of Business also found that passive mutual funds have average expense ratios more than twice that of ETFs, and these management costs are the key factor hindering their long-term performance.

Historical data confirms this. Lower fees ultimately translate into slightly higher returns.

This 0.09% annualized return gap can almost entirely be attributed to SPY’s higher expense ratio. For long-term investors, every penny saved in costs turns into substantial wealth in the future through compounding.

VOO’s Low Share Price and IVV’s Low Tracking Error

When deciding between VOO and IVV, you will find their differences are very subtle.

• VOO’s Low Share Price Advantage VOO typically has the lowest share price among the three. For example, if VOO is $450 per share while IVV is $500, this means you need less initial capital to buy a full share. This is especially friendly for investors with limited funds or those wanting small regular investments. For instance, through platforms like Biyapay that support small-amount trading, you can more flexibly execute monthly dollar-cost averaging without high share prices disrupting your rhythm.
• IVV’s Low Tracking Error Advantage Tracking error measures the deviation between an ETF’s return and its benchmark index return. From technical data, IVV usually has the lowest tracking error among the three, meaning it most accurately replicates the S&P 500 Index.

Beginner Tip Although IVV has a slight edge in technical metrics, this difference is extremely small and has virtually no practical impact on ordinary investors’ long-term total returns. You can completely ignore this factor—it should not be a barrier to your decision.

VOO vs. IVV: How to Make the Final Choice

Now you understand all the key information about VOO and IVV. They both come from the world’s top asset management companies (Vanguard and BlackRock) and have extremely low fees and massive asset scales. So how do you make the final choice?

The answer may surprise you: pick either one.

Decision Guide: Stop Overthinking

1. Do you do small regular investments? If yes, VOO’s lower share price may be more friendly to you.
2. Do you have a special preference for the issuer? Some people trust Vanguard’s investor-ownership structure more, while others prefer BlackRock’s global influence.
3. If neither of the above matters to you, then close your eyes and pick one, or flip a coin.

The most important thing is not making the “perfect” choice between VOO and IVV, but starting to invest immediately. The time cost lost from overthinking these minor differences far exceeds the loss from choosing the “less optimal” ETF.

Short-Term Trading: SPY’s Liquidity Advantage

If you are not a long-term investor planning to hold for decades but a short-term trader hoping to profit through swing trading or frequent transactions, then your decision scale needs to tilt the other way. In this scenario, SPY’s unmatched liquidity makes it the undisputed best choice.

Why Liquidity Matters for Short-Term Trading

For those who don’t trade often, “liquidity” may be an abstract concept. But for short-term traders, it directly determines trading costs and success. You can understand liquidity as: how quickly and easily you can convert your assets into cash with minimal price loss.

High liquidity mainly brings two advantages:

1. Lower Trading Costs (Tighter Bid-Ask Spread) Every time you trade, you encounter a “bid-ask spread.” This is the difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller will accept (ask). This spread is essentially the hidden fee you pay to market makers to complete the trade.

   Core Knowledge Point The higher the market liquidity and competition, the tighter the bid-ask spread. For someone who may trade multiple times a day, choosing an ETF like SPY with an extremely tight spread can save a considerable amount in trading costs over time.

2. More Accurate Execution Price (Low Price Slippage) When you try to quickly buy or sell a large number of stocks, especially in low-liquidity markets, “price slippage” is likely to occur. This means your final average execution price is worse than the best quote you saw when placing the order. For example, you want to buy 20,000 shares of an ETF at market price, but the best ask only has 1,000 shares available. After filling those 1,000 shares, your order continues to hit higher asks, pushing up your average buy cost. SPY’s enormous volume virtually eliminates this issue, ensuring even large orders execute close to the best quoted price quickly.

SPY: The Preferred Choice for Institutions and Options Traders

Precisely because of the extreme demand for liquidity, SPY has become the tool of choice for professional institutions and options traders.

• Institutions’ “Highway” For hedge funds or asset managers needing to execute millions or even billions in trades, tiny slippage can cause huge losses. SPY’s secondary market volume far exceeds the combined total of VOO and IVV, providing institutions with unmatched trading depth. When institutions need to execute large orders, they can even bypass the open market and conduct risk trades directly with large market makers through trading desks. Market makers provide a firm bid/ask for specific order sizes and execute immediately, then assume the subsequent market risk themselves. This efficient execution is only smooth with an ETF as liquid as SPY.
• Options Players’ “Main Battlefield” If you plan to use options strategies to hedge risk or amplify returns, SPY is almost the only choice. SPY has the largest and most active options market among global ETFs.

  Trader Consensus Huge options volume means you can easily find counterparties, with extremely tight bid-ask spreads and a vast array of strike prices and expiration dates. Whether simple covered calls or complex multi-leg strategies, SPY’s options chain provides ample ammunition. In contrast, VOO and IVV’s options markets have sparse volume, making efficient strategy execution difficult.

Do Ordinary Investors Need to Pay for High Liquidity?

Now you clearly understand SPY’s huge liquidity advantage. But the question arises: as an ordinary retail investor, do you really need to pay extra for this “professional-grade” liquidity?

The answer is: Probably not.

Choosing SPY means accepting several inherent disadvantages, and these disadvantages impact ordinary investors far more than the benefits of its liquidity.

1. Higher Expense Ratio: As mentioned earlier, SPY’s 0.09% expense ratio is three times that of VOO and IVV. If you don’t trade frequently, this fee continuously erodes your long-term returns.
2. Structural Disadvantages (UIT): SPY’s legal structure is a Unit Investment Trust, while VOO and IVV are more modern open-end funds. This structural difference leads to two issues:
   • Dividend Drag: After receiving dividends from constituent companies, SPY cannot immediately reinvest the cash into the index like VOO but must hold it as cash until the quarterly distribution date before paying it out to you. This idle cash generates no return, causing a small loss in overall returns.
   • Lower Tax Efficiency: Due to structural limitations, SPY is less efficient in tax optimization when handling large redemptions compared to VOO and IVV. VOO and IVV can more efficiently handle tax issues through “in-kind redemptions”.

In summary, unless you are a short-term trader with large capital needing instant execution of large orders or a professional options player, SPY’s liquidity advantage is of little significance to you. Paying higher annual fees and accepting structural disadvantages for a feature you may never use is not cost-effective for your long-term portfolio. For most people, VOO or IVV remains the wiser choice for investing in an S&P 500 index fund.

Your choice ultimately depends on your investment strategy. We have prepared a clear action guide to help you decide.

Final Decision Checklist

• Long-Term Holders: Choose VOO or IVV to enjoy the compounding advantage of low fees.
• Short-Term Traders/Options Players: Choose SPY to leverage its ultimate liquidity.
• Still Hesitating Between VOO and IVV: Stop overthinking. Pick one at random and start immediately.

History proves that in the past 15 years, active mutual funds underperformed the index in 12 years. Therefore, the most important thing is not over-hesitating on minor details but choosing a high-quality S&P 500 index fund and immediately starting your investment journey.

FAQ

Why not just buy all 500 stocks directly?

Directly buying 500 stocks requires extremely high capital and is very complex to manage. ETFs allow you to buy a small portion of all these companies with one trade. This makes investing simple and low-cost—you don’t need to operate each one individually.

If the ETF issuer goes bankrupt, will my money disappear?

Your assets are safe. By regulation, the ETF assets you hold are custodied by an independent custodian and segregated from the issuer’s assets. Even if the issuer faces financial issues, these assets are protected and will not disappear.

Can investing in these ETFs lose money?

Yes. You need to understand that these ETFs’ value fluctuates with the overall stock market. They carry market risk, and prices may fall in the short term. Long-term investing is an effective strategy to diversify this short-term volatility risk.

Are there other S&P 500 ETFs besides these three?

Yes, there are other ETFs tracking the S&P 500 Index in the market. But VOO, IVV, and SPY are by far the largest, most actively traded, and most popular with investors. For the vast majority of people, the choice is usually among these three.