S&P 500 ETF Showdown: SPY vs VOO vs IVV - Which One Wins?

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Choosing which S&P 500 ETF to invest in largely depends on your investment style. Are you aiming for the lowest-cost long-term holding, or do you need high liquidity for frequent trading?

Core Recommendation:

• Long-term Investors: For the vast majority of investors seeking long-term growth, VOO or IVV are superior choices due to their extremely low fees.
• Short-term Traders: For active traders who need to buy and sell frequently or engage in options trading, SPY’s unparalleled liquidity makes it the undisputed top pick.

Key Takeaways

• Long-term investors should choose VOO or IVV because they have lower expense ratios.
• Short-term traders should choose SPY because it offers better liquidity.
• VOO and IVV can immediately reinvest dividends, avoiding “cash drag.”
• SPY has massive trading volume and tight bid-ask spreads, making it ideal for frequent trading.
• The best ETF for you depends on your investment goals and trading frequency.

SPY vs VOO vs IVV: Side-by-Side Comparison of Key Metrics

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All three ETFs aim to track the same index—the S&P 500—so their long-term performance is virtually identical. However, the devil is in the details. These seemingly minor differences determine which ETF is best suited to your portfolio and strategy.

Expense Ratio: The Core Cost Difference

The expense ratio is the annual fee you pay for fund management, deducted directly from your investment returns. For long-term investing, even a difference of a few basis points can have a significant impact due to compounding.

Here’s a clear table showing their fees:

As you can clearly see, the expense ratios of VOO and IVV are only one-third of SPY’s. This means that for every $10,000 invested, you pay just $3 per year for VOO or IVV, compared to about $9.45 for SPY. It may not sound like much, but time magnifies this gap.

“Cash Drag”: A Hidden Cost of SPY SPY’s structure is a unit investment trust, an older fund structure that does not allow automatic reinvestment of received company dividends within the fund. Instead, these cash dividends sit idle in the account until they are distributed quarterly. In bull markets, this cash that isn’t promptly invested misses out on market gains, creating a slight drag on overall returns—known as “cash drag.” In contrast, VOO and IVV, as modern open-end ETFs, can immediately reinvest dividends, allowing you to fully benefit from compounding.

Liquidity: The Lifeline for Traders

Liquidity measures how quickly and easily you can buy or sell an asset at a fair price. High liquidity generally means:

• Massive trading volume: Enormous shares change hands daily.
• Very tight bid-ask spreads: The buy and sell prices are very close, reducing your transaction costs.

In this area, SPY is the undisputed king. As the first and most famous S&P 500 ETF on the market, its average daily trading volume far exceeds the combined volume of VOO and IVV.

For short-term traders, institutional investors, or options players, SPY’s extreme liquidity is critical. It ensures large orders can be absorbed by the market quickly without significantly impacting the price. Additionally, SPY offers the most active and extensive options chain on the market, providing unparalleled convenience for complex derivatives strategies.

Tracking Error and Issuer

Tracking error refers to the difference between an ETF’s returns and those of the index it tracks. Ideally, this error should be as small as possible.

• SPY (State Street Global Advisors): As the oldest ETF, its structure and higher fees may lead to slight tracking error.
• VOO (Vanguard): Vanguard is renowned for its unique investor-owned structure and low-cost philosophy, resulting in very low tracking error.
• IVV (BlackRock): Issued by BlackRock, the world’s largest asset manager, it is generally considered to have the lowest tracking error among the three, thanks to its efficient portfolio management.

That said, the tracking error for all three ETFs is very small and practically negligible for most long-term investors. Choosing an issuer often comes down to brand preference. All three companies are industry giants managing trillions of dollars in assets with excellent reputations.

Assets Under Management and Share Price

Assets under management (AUM) reflect the market’s overall trust and acceptance of an ETF. As of now, all three manage hundreds of billions of dollars, making them among the most robust investment vehicles available.

Another practical detail worth noting is their share prices. Here are approximate per-share prices (note that prices fluctuate in real time):

• SPY: Around $685 per share
• IVV: Around $689 per share
• VOO: Around $630 per share

For beginners or those planning small regular investments, VOO’s relatively lower share price may be more approachable. It allows you to buy whole shares with less capital, making it easier to execute your investment plan. Of course, if your broker supports fractional shares, share price becomes much less relevant.

Which S&P 500 ETF Fits Your Investment Style?

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You now understand the subtle differences between SPY, VOO, and IVV across key metrics. It’s time to apply this knowledge and determine which ETF best aligns with your personal investment blueprint. The answer depends entirely on your investment horizon and trading frequency.

Long-Term Investors: Prioritize Low Costs

If your goal is to buy and hold for years or even decades, your top priority should be minimizing costs. In this strategy, VOO and IVV are clearly superior.

The Magic of Time: How Fees Impact Compounding

VOO and IVV have an expense ratio of just 0.03%. This means for every $1,000 invested, you pay only $0.30 annually in fees. In comparison, SPY’s 0.0945% ratio costs more than twice as much each year.

This seemingly tiny difference becomes substantial over time. The S&P 500’s historical annualized returns roughly double your money every nine years. Every dollar should be working for you in the market, not going to the fund company. Lower fees mean more principal participates in compounding, ultimately delivering greater returns.

VOO and IVV’s “Hidden” Advantages Beyond low fees, VOO and IVV offer two less-obvious benefits that further enhance long-term returns:

• Efficient Dividend Reinvestment: Unlike SPY, VOO and IVV use modern fund structures that allow immediate reinvestment of received dividends rather than letting cash sit idle. This avoids “cash drag” and ensures every dollar benefits from compounding as soon as possible.
• Securities Lending Revenue: Vanguard and BlackRock lend out portions of their holdings to other institutions and earn interest, which is returned to the fund to help offset management fees. Though modest, this further reduces your holding costs and helps the fund track the index more closely.

So, how to choose between VOO and IVV? Honestly, the differences are minimal. You can decide based on brand preference. For example, Vanguard’s unique “investors own the company” structure aligns its interests closely with yours. Ultimately, you can’t go wrong with either.

Once you’ve selected your long-term S&P 500 ETF, the next step is execution. You can conveniently convert funds to USD and invest in your chosen ETF through platforms like Biyapay, starting your wealth-building journey.

Short-Term Traders: Embrace High Liquidity

If your style leans toward short-term trading, swing trading, or using derivatives like options, liquidity is your lifeline. In this case, SPY is the undisputed best choice.

For frequent traders, transaction costs can even outweigh expense ratios. These costs primarily refer to the bid-ask spread—the price difference between buying and selling the same asset.

Why SPY Is a Trader’s Favorite

As the oldest and most actively traded ETF on the market, SPY offers unmatched liquidity.

• Extremely Low Transaction Costs: SPY’s daily trading volume is many times that of VOO and IVV combined. Its enormous depth results in very tight spreads, often just $0.01. While the absolute spread may be similar to some ETFs, its higher share price makes the percentage spread narrower, minimizing “friction” costs on each trade.
• Superior Execution Speed: High liquidity ensures large orders are absorbed quickly without significantly moving the price—critical for day traders who need to enter and exit positions rapidly.
• Reliability in Volatile Markets: Even during periods of extreme market volatility, SPY’s spreads remain stable. Historical data shows investors flock to SPY for liquidity during panics, making it the most dependable trading vehicle.
• Rich Options Chain: SPY has the world’s most active and expansive options market. If you want to hedge risk or amplify returns through options strategies, SPY provides the most choices and best liquidity.

In short, SPY’s superior liquidity provides active traders with an efficient, low-cost trading environment. If you need tactical asset allocation or to capitalize on intraday moves, SPY ensures your strategies execute at optimal prices. For such needs, consider platforms like Biyapay that support fast trading and efficient access to U.S. markets, helping you seize every opportunity.

You now have all the information needed to make an informed decision. The choice of ETF ultimately depends on your personal investment blueprint.

Key Takeaways Recap

• Long-Term Holding: Choose VOO or IVV to let ultra-low costs supercharge your compounding growth.
• Short-Term Trading: Embrace SPY and leverage its unmatched liquidity for smooth, efficient trades.

The most important step is to take action. Define your strategy, select the S&P 500 ETF that best fits you, and execute decisively. Don’t overthink these minor differences and miss out on market progress.

FAQ

Can I hold all three ETFs at the same time?

You can, but there’s no need. SPY, VOO, and IVV all track the same index with nearly identical holdings. Owning all three provides no diversification benefit and only complicates portfolio management. Focus on just one.

Do I need to consider taxes when investing in these ETFs?

Yes, you should. As a non-U.S. investor, dividends received are typically subject to a 30% withholding tax. However, specific rules may vary based on tax treaties between your country and the U.S. Consult a professional tax advisor for personalized guidance.

Since SPY has higher fees, why is it still so popular?

SPY’s popularity stems from its unparalleled liquidity. It is the preferred tool for institutions and short-term traders because it ensures large orders execute quickly with minimal transaction costs. Its historical status and vast options market are also key factors.

If my broker offers commission-free trading, does it still matter which ETF I choose?

Yes, it does. Brokers waive trading commissions, but they can’t eliminate the ETF’s own expense ratio. For long-term investing, a 0.06% fee difference will still meaningfully impact your final returns. Therefore, lower-cost VOO or IVV remain the better choices.