VOO vs. SPY: Looking Beyond the Fees to Find Value

Financial advisors make the case for paying more to get the same thing.

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Jeff_Benjamin
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Wealth Management Editor
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Reviewed by: Paul Curcio
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Edited by: Kiran Aditham

With the $603 billion Vanguard S&P 500 ETF (VOO) closing in on the $623 billion SPDR S&P 500 ETF Trust (SPY) as the largest exchange-traded fund, it is worth considering the factors, both obvious and less so, driving assets toward these two behemoths offering essentially the same thing.

The most obvious driver behind VOO’s $123 billion worth of 12-month net inflows, compared to $37 billion for SPY, is costs.

VOO charges three basis points, while SPY charges nine basis points, which one might think would raise the question of fiduciary duty among financial advisors.

But it’s not quite that simple, and if it were, VOO, which has been around since 2010, would have long ago surpassed SPY, which turns 32 this month.

A slightly deeper dive into the subtly unique characteristics of VOO and SPY illustrates how financial advisors are not just throwing darts at these two ETFs.

In explaining how to choose, Chuck Failla, principal at Sovereign Financial Group in Stamford, Connecticut, said, “SPY, if you're looking to do option strategies, because SPY has a more robust options market, but VOO if you're simply looking for S&P 500 exposure."

VOO Stacks Up Against SPY

From most perspectives, the lower-cost VOO is a no-brainer allocation for investors just seeking long-term exposure to the S&P 500 Index, but there is also a structural issue that can make VOO more tax-efficient than SPY.

As financial advisor Deepak Goyal of 3D Holistic Wealth in Irvine, California, explained, SPY is structured as a Unit Investment Trust, which imposes certain restrictions, such as not being able to reinvest dividends immediately. VOO, meanwhile, is designed as a traditional ETF, allowing for more flexibility in reinvesting dividends and managing capital gains, thus making it potentially more tax-efficient.

“This distinction is generally more relevant for long-term buy-and-hold investors rather than active traders or options users,” Goyal said.

Melissa Caro, founder of My Retirement Network in New York, also cites VOO’s ETF structure not just for tax purposes, but also for the way dividends are treated.

“It is important to note that VOO reinvests dividends until they are paid out quarterly whereas SPY holds dividends in cash until paid out quarterly,” she said. “VOO’s approach might provide a small compounding advantage over time.” 

Essentially, for long-term investors, VOO perhaps makes the most sense, which could be the main reason it will likely overtake SPY at some point this year.

However, as the granddaddy of all ETFs, SPY isn’t going anywhere.

“SPY stands out due to its extensive options market, offering more weekly, quarterly, and monthly options than VOO,” said Goyal. “This is critical for clients requiring sophisticated options strategies, and SPY options generally exhibit higher open interest and trading volume, which translates to narrower bid-ask spreads compared to VOO options.”

Tip: For deeper analysis, see our VOO vs SPY comparison.

SPLG: Low-Cost Alternative to SPY

Of course, for investors still looking for the lowest cost exposure to the S&P, there is also the $55 billion SPDR Portfolio S&P 500 ETF (SPLG), which charges just two basis points.

“Spreads on SPLG are a tiny bit more, but that likely won’t matter for most people,” said Dan Stous, lead wealth advisor at Flagstone Financial Management in Lincoln, Nebraska.

“The savings in basis points dwarfs the wider spreads for most people unless they’re frequent traders, and index investors usually aren’t frequent traders,” he added. “I think it’s tough for any fiduciary to recommend SPY over SPLG, unless an investor already owns SPY with significant unrealized gains.”

Jeff Benjamin is the wealth management editor at etf.com, responsible for coverage related to the financial planning industry. This includes writing, hosting podcasts, webinars, video interviews and presenting at in-person events.


Jeff is a veteran journalist with more than 30 years’ experience covering the financial markets. He has won more than two dozen national and regional awards for his reporting. He most recently worked as a senior columnist at InvestmentNews where he wrote about investment products and strategies, as well as the broader financial planning industry. Prior to that, Jeff worked as an analyst at Cerulli Associates where he researched and wrote reports on the alternative investments industry. Jeff also worked as a money management reporter at Dow Jones Newswires, where he covered the mutual fund industry.


Based in North Carolina, Jeff is a former Marine and has a bachelor’s degree in journalism from Central Michigan University.

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