Two S&P 500 Funds, Built for Different Investors

SPY and VOO both track the S&P 500, so they hold the same 500 large US companies in almost exactly the same proportions, and their returns over time are nearly identical. The main differences are cost, structure and trading activity: VOO charges a lower annual fee of 0.03%, while SPY charges 0.0945%, but SPY trades in far greater volume and has the deepest options market of any ETF in the world.

For most long-term investors who buy and hold, the lower cost of VOO gives it a small but steady edge. For active traders and institutions who buy and sell large amounts quickly or trade options, SPY’s unmatched liquidity is often worth the extra cost.

This guide explains exactly how the two funds differ: who runs them, how their legal structures work, what the fee gap costs over time, how dividends and taxes are handled, which investors favor each, and how they compare with other S&P 500 funds such as IVV.

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For video explainers on the most popular ETFs, the FRC Retail Investing video series covers these funds and many more. If you are new to ETFs, FRC’s ETF Investing for Beginners course explains how they work, followed by ETF Investing Strategies and Advanced ETF Investing.

FRC’s programs and memberships are open to everyone. FRC’s guide to how to invest in the S&P 500 covers every way to own the index, including these two funds.

SPY vs VOO at a Glance

Both funds pay dividends quarterly. Their holdings are the same companies, from the largest technology firms to smaller members of the index.

What Both Funds Track: The S&P 500

The S&P 500 is an index of about 500 of the largest publicly traded companies in the United States, chosen by a committee at S&P Dow Jones Indices. It is weighted by market capitalization, so the largest companies make up the biggest share of the index.

Because SPY and VOO track the same index, they own the same companies in nearly identical weights. When the S&P 500 rises or falls, both funds move almost exactly in step.

FRC’s guides to S&P 500 vs Nasdaq and Dow Jones vs S&P 500 explain how the index compares with other major benchmarks.

SPY: The Original ETF

SPY, the SPDR S&P 500 ETF Trust, began trading on January 22, 1993, as the first exchange-traded fund listed in the United States. It was created by State Street and the American Stock Exchange, and its success launched the entire ETF industry.

For decades, SPY was the largest ETF in the world by assets. It remains the most heavily traded ETF, with enormous volumes changing hands every trading day.

That history gives SPY a unique place in the market. Professional traders, hedge funds and institutions use it as a primary tool for gaining or hedging exposure to the US stock market in a single trade.

VOO: Vanguard’s Low-Cost Challenger

VOO, the Vanguard S&P 500 ETF, launched in September 2010. It is offered by Vanguard, the company founded by John Bogle, who popularized low-cost index investing for ordinary investors.

VOO grew rapidly as long-term investors moved towards the lowest-cost funds. In February 2025, it overtook SPY to become the largest ETF in the world by assets.

VOO is built as a share class of Vanguard’s long-running S&P 500 index mutual fund. That structure lets the ETF and the mutual fund share the same underlying portfolio, which helps keep costs low.

The Cost Difference

The expense ratio is the annual fee a fund charges, taken as a percentage of your investment. VOO charges 0.03%, or $3 a year for every $10,000 invested, while SPY charges 0.0945%, or about $9.45 a year per $10,000.

On a single year, the gap is small. On a $100,000 investment, VOO costs about $30 a year and SPY about $94.50, a difference of $64.50.

Over long periods, the difference compounds. If $100,000 grew at 7% a year before fees for 30 years, the lower fee would leave roughly $13,500 more in the account, all else being equal.

Why the Structures Are Different

SPY is organized as a unit investment trust, a structure common when it launched. A unit investment trust must hold the index stocks directly and follow a fixed set of rules, with less flexibility than a modern fund.

VOO is a share class of an open-end fund registered under the Investment Company Act of 1940. That structure allows the fund manager more flexibility in how it handles cash and the portfolio.

These differences are technical, but they have real effects. They explain several of the small performance and income differences between the two funds.

Dividends and Cash Drag

Companies in the S&P 500 pay dividends throughout the quarter. Because of its unit investment trust structure, SPY cannot reinvest those dividends while it holds them, so the cash sits uninvested until it is paid out to shareholders each quarter.

That uninvested cash creates a small drag in rising markets, because a slice of the fund is not invested in stocks. VOO can reinvest dividends as they arrive, keeping more of the fund fully invested.

In falling markets, the effect reverses slightly, because cash holds its value while stocks fall. Over long periods of rising markets, however, the drag tends to work against SPY.

Securities Lending

Many funds earn extra income through securities lending, lending some of their shares to other market participants, often short sellers, in exchange for a fee. That income can help offset a fund’s costs.

SPY’s unit investment trust structure does not allow securities lending. VOO’s structure does, giving it a small additional source of income.

For S&P 500 funds, the income from lending large, widely available shares is modest. It is one more small factor that adds to VOO’s cost advantage.

Trading, Liquidity and Spreads

Liquidity is where SPY stands apart. It trades in larger volumes than any other ETF, which allows traders and institutions to buy or sell very large amounts quickly with minimal effect on the price.

Both funds typically have a bid-ask spread of a penny or close to it during normal trading hours. For an investor buying a few shares a month, the trading cost difference between them is effectively zero.

For a trader moving millions of dollars in seconds, SPY’s depth can count for more than the annual fee. That is why SPY remains the vehicle of choice for many professional trading desks.

Options on SPY and VOO

Options give the right to buy or sell an asset at a set price, and investors use them to hedge, to generate income or to speculate. SPY has the most actively traded options of any ETF, with contracts expiring every trading day.

That depth gives SPY options very tight spreads and a huge range of strike prices and expiration dates. Institutions and active traders rely on them for hedging strategies that would be harder to execute elsewhere.

VOO also has listed options, but the market is far smaller. For an investor who plans to trade options on the S&P 500, SPY is the dominant tool, while for a buy-and-hold investor who never trades options, this difference has no effect.

Performance: Nearly Identical

Because both funds track the same index, their performance is nearly identical over any meaningful period. The small differences that do appear come almost entirely from fees and the effects of cash drag and securities lending.

Over long periods, VOO has typically delivered a slightly higher total return than SPY, with the gap close to the difference in their fees. In any single year, the gap is usually a small fraction of one percentage point.

Total return, which includes both price changes and reinvested dividends, is the right way to compare them. Comparing price alone ignores the dividends both funds pay.

Taxes on SPY and VOO

Both funds are highly tax-efficient. As ETFs, they can usually meet investor redemptions by transferring shares in kind rather than selling stocks for cash, which limits the capital gains they must distribute.

Neither fund has a history of large capital gains distributions. Their dividends are generally treated as qualified dividends, taxed at lower long-term capital gains rates for investors who meet the holding period.

FRC’s guide to qualified vs non-qualified dividends explains how that treatment works. In a taxable account, investors who switch from one fund to the other should remember that selling can trigger capital gains tax on any profit.

Switching From SPY to VOO

Some long-term investors who own SPY consider moving to VOO to cut their costs. In a tax-advantaged account such as an IRA or 401(k), switching has no immediate tax consequence.

In a taxable account, selling SPY at a gain creates a taxable event, which could cost more in tax than the fee savings would recover for many years. Investors in this position often keep their existing SPY shares and direct new money into VOO instead.

Selling one S&P 500 fund at a loss and immediately buying a near-identical one raises questions under the wash sale rule. The IRS has not given clear guidance on whether two funds tracking the same index are substantially identical, so investors considering tax-loss harvesting should seek professional tax advice.

What About IVV and Other S&P 500 Funds?

SPY and VOO are not the only S&P 500 ETFs. The iShares Core S&P 500 ETF, IVV, from BlackRock, also charges 0.03% and is structured as an open-end fund like VOO.

State Street also offers a low-cost S&P 500 ETF aimed at long-term investors, alongside SPY. Many investors use these lower-cost funds for long-term holdings and reserve SPY for trading.

Mutual fund versions also exist, such as Fidelity’s FXAIX. FRC’s guide to Fidelity index funds compares several of them.

Who Tends to Choose SPY

Active traders who move in and out of the market frequently tend to favor SPY. Its liquidity allows large orders to be filled almost instantly at tight prices.

Options traders also favor SPY because of its unrivaled options market. Strategies such as covered calls, protective puts and daily expiring options are easiest to run on SPY.

Institutions, hedge funds and professional managers use SPY to adjust market exposure quickly. For these users, the extra annual cost is small compared with the trading benefits.

Who Tends to Choose VOO

Long-term investors who buy and hold for years or decades tend to favor VOO. For them, the lower expense ratio and the absence of cash drag add up over time.

Investors who contribute regularly, such as through monthly purchases in an IRA or brokerage account, benefit from every basis point saved. VOO is also popular in retirement accounts and with investors who reinvest dividends.

Many investors who already hold accounts at Vanguard use VOO for convenience, but it can be bought commission-free at most major brokerages. FRC’s guide to Is Vanguard Safe? explains how Vanguard is structured and regulated.

Worked Example: A Monthly Investor

An investor puts $500 a month into an S&P 500 fund for 30 years, earning 7% a year before fees. Choosing VOO rather than SPY would leave the investor with roughly $7,600 more at the end, entirely because of the lower annual fee.

The investor’s experience along the way would be almost identical. Both funds would rise and fall together, pay similar quarterly dividends and hold the same companies.

For this investor, the choice comes down almost entirely to cost. FRC’s guide to how much $500 a month in an S&P 500 ETF grows over 30 years shows how that kind of plan builds over time.

Worked Example: An Active Trader

A trader moves several million dollars in and out of the S&P 500 within a single day, using options to manage risk. For this trader, saving a fraction of a basis point on each trade through tighter spreads and deeper markets is worth far more than the annual fee difference.

Holding positions for days or hours rather than years means the expense ratio has little time to accumulate. The quality of execution counts for far more.

For this user, SPY is the natural choice. The same fund that is slightly more expensive for a long-term investor is the most efficient tool available for active trading.

Common Misunderstandings

One common misunderstanding is that SPY and VOO hold different companies. They track the same index and hold the same stocks.

Another is that a higher share price makes one fund better or worse value. The share price simply reflects how each fund divides its assets into shares, and buying $1,000 of either gives you the same exposure to the S&P 500.

A third is that the fee difference is too small to count. For a long-term investor, small annual differences compound over decades, which is why cost is the main deciding factor for buy-and-hold investors.

Is Your Money Safe in SPY or VOO?

Both funds are regulated investment products overseen by the SEC. The stocks they hold are kept with independent custodian banks, separate from the fund companies’ own assets.

When you hold either fund through a brokerage account at a SIPC member firm, your account is protected up to $500,000, including $250,000 in cash, if the brokerage fails and assets are missing. This protection does not cover market losses.

FRC’s guide to whether your money is safe in a brokerage account explains these protections. Like all stock investments, both funds will fall in value when the market falls.

Keep Learning

Understanding the differences between nearly identical funds is one of the most practical investing skills. It teaches you to look past the ticker and focus on cost, structure and how you plan to use the fund.

The FRC dictionary is more than a dictionary. It is a library of explainer videos, written explanations and on-page quizzes, so you can open any term, such as exchange-traded fund, and go deeper whenever something is unclear.

FRC’s programs and memberships are open to everyone. FRC’s comparison of VOO vs VTI vs QQQ and its guide to how to invest in ETFs are natural next steps.

Your Next Step

SPY and VOO both track the S&P 500 and deliver nearly identical returns. VOO’s lower fee and more flexible structure give it an edge for long-term investors, while SPY’s unmatched liquidity and options market make it the leading tool for active traders.

Decide how you plan to use the fund, compare the costs and choose the one that fits, then focus on investing consistently over time.