SPY vs. VOO is the most fundamental ETF comparison in US investing. Both track the S&P 500 Index. Both are among the most liquid ETFs in the world. But SPY charges 0.0945% while VOO charges 0.03% — and over 30 years, that difference matters.
Quick Comparison: SPY vs. VOO
| Feature | SPY | VOO |
|---|---|---|
| Issuer | State Street (SPDR) | Vanguard |
| Index tracked | S&P 500 | S&P 500 |
| Expense ratio | 0.0945% | 0.03% |
| AUM | ~$600B+ | ~$500B+ |
| Average daily volume | Extremely high (institutional) | Very high (retail + institutional) |
| Structure | Unit Investment Trust (UIT) | Open-end fund |
| Options market | Deepest in US equity ETFs | Large, liquid options market |
| Dividend treatment | Held in non-interest trust until distributed | Immediately reinvested (slight advantage) |
| Inception date | January 1993 | September 2010 |
Why Does SPY Cost More?
SPY was launched in January 1993 — the first US-listed ETF. Its trust structure (Unit Investment Trust) was established early and hasn’t changed significantly. The 0.0945% expense ratio partially reflects State Street’s management fee and partially the structural costs of the UIT format.
Vanguard launched VOO in 2010 using a more modern open-end fund structure, with its characteristic ultra-low cost approach. The result: VOO charges less than a third of SPY’s fee for identical market exposure.
The Cost Gap: How Much Does It Matter?
On a $10,000 investment:
- SPY: $9.45/year
- VOO: $3.00/year
- Difference: $6.45/year
That sounds trivial — but compounding over decades:
| Holding period | $100,000 initial investment at 7% gross return | Cost difference |
|---|---|---|
| 10 years | SPY: ~$183,800 | VOO: ~$185,700 |
| 20 years | SPY: ~$338,000 | VOO: ~$345,700 |
| 30 years | SPY: ~$621,700 | VOO: ~$643,000 |
Over 30 years, VOO produces approximately $21,000 more on a $100,000 investment at 7% annualised return — solely due to the lower expense ratio.
SPY’s UIT Structure: A Minor Disadvantage for Long-Term Investors
SPY’s Unit Investment Trust structure means dividends from underlying S&P 500 stocks are held in a non-interest-bearing account until they are distributed quarterly. VOO (an open-end fund) can reinvest dividends immediately. This creates a small cash drag for SPY during bull markets — dividend cash that could be working in the market sits idle.
Over many years, this drag adds a small additional headwind for SPY relative to VOO.
When SPY Wins: Liquidity and Options
SPY’s key advantage is unmatched liquidity:
- SPY trades hundreds of millions of shares per day
- SPY has the largest and most liquid options market of any US ETF
- Bid-ask spreads on SPY are extraordinarily tight (often $0.01)
- Major institutional moves happen in SPY — hedge funds, pension funds, prop traders
For active options traders, SPY’s options market depth is essential. The volume of SPY puts and calls dwarfs all competitors, providing:
- Tighter bid-ask spreads on options
- Deep liquidity at all strike prices and expiries
- Better price discovery
For short-term traders, the additional liquidity of SPY reduces slippage costs that can easily exceed the 0.0645% expense ratio difference.
SPYG and SPXL: What About Leveraged/Growth Versions?
Common SPY-adjacent ETFs:
- SPYG (SPDR S&P 500 Growth ETF) — S&P 500 growth stocks only; 0.04%
- SPXL (Direxion Daily S&P 500 Bull 3×) — 3× leveraged; for sophisticated traders only
- SPLG (SPDR Portfolio S&P 500 ETF) — State Street’s cheaper S&P 500 ETF at 0.02%; underutilised
SPLG (0.02%) is actually cheaper than both SPY and VOO — but has lower liquidity and is less well-known. Worth considering for pure cost minimisation.
IVV: The Third Option
Don’t overlook IVV (iShares Core S&P 500 ETF) at 0.03% — identical in cost to VOO, with very high liquidity:
| ETF | Expense ratio | Notes |
|---|---|---|
| SPY | 0.0945% | Best liquidity; best for options |
| VOO | 0.03% | Best for long-term buy-and-hold at Vanguard |
| IVV | 0.03% | Best for long-term at iShares accounts |
| SPLG | 0.02% | Cheapest option; lower liquidity |
For long-term investors, VOO and IVV are tied on cost. SPY is for traders and institutions.
Who Should Buy SPY?
- Active options traders who need deep SPY options liquidity
- Institutional investors making large single-day trades
- Short-term traders who prioritise liquidity over cost
- Hedgers using S&P 500 futures and options
Who Should Buy VOO?
- Long-term buy-and-hold investors
- Roth IRA and traditional IRA investors
- Anyone at Vanguard or other brokers not using SPY options strategies
- Investors who want to minimise the ongoing cost drag on their portfolio
Internal Links
- VOO ETF 2026 Review
- VOO vs. VTI: which Vanguard ETF?
- VOO vs. QQQ: S&P 500 vs. Nasdaq-100
- FXAIX vs. VOO: Fidelity vs. Vanguard
- Vanguard vs. Fidelity: full comparison
- Vanguard investing hub
Bottom Line
Buy VOO (or IVV) if you are a long-term investor. The 0.0645% annual cost advantage over SPY compounds to tens of thousands of dollars over a 30-year investment horizon. Buy SPY if you are an active trader or options strategist who needs the deepest liquidity and most robust options market in US equity ETFs. For the vast majority of individual investors — especially in a Roth IRA or long-term brokerage account — VOO is the clear choice.
This article is for educational purposes only and does not constitute personalised investment advice. All investments carry risk, including the possible loss of principal.
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