Strategic Investing: Choosing Between VOO & SPY for Your Portfolio

Strategic Investing: Choosing Between VOO & SPY for Your Portfolio

For doctors considering different investment options, exchange-traded funds (ETFs) can provide diversification, easy buying and selling, and cost-effectiveness. Among the various ETF options, Vanguard S&P 500 ETF (VOO) and SPDR S&P 500 ETF Trust (SPY) are widely favored by investors seeking to mirror the S&P 500 index‘s performance. This article aims to compare the distinctions between these two ETFs to assist you in choosing the one that best aligns with your investment approach.

Understanding VOO & SPY

Unsure of the difference between VOO and SPY? This section breaks down these popular S&P 500 ETFs to shed light on their similarities and key distinctions.

What Are ETFs?

Exchange-traded funds (ETFs) are investment vehicles that are traded on stock exchanges like individual stocks. They consist of assets like stocks, commodities, or bonds and they usually function with an arbitrage system to maintain trading levels near their asset value. ETFs provide investors with a cost method to access a range of assets.

Overview of VOO

Vanguard‘s VOO, introduced in 2010, strives to mirror the S&P 500 index’s performance. With Vanguard’s reputation for offering budget-friendly investment opportunities, VOO stands out as a solid option for investors mindful of costs.

Overview of SPY

SPY, which is overseen by State Street Global Advisors became the first ETF to debut in the United States back in 1993. It follows the movements of the S&P 500 index. It’s well known for its liquidity and substantial trading activity, making it a popular option among numerous institutional investors.

Key Differences Between VOO & SPY

While VOO and SPY both provide access to the S&P 500, a closer look reveals some crucial distinctions. This section dives into these key differences to help you decide which ETF might be the better fit for your investment strategy.

Expense Ratios

One of the most critical factors to consider when choosing between VOO and SPY is the expense ratio, which represents the cost of managing the fund.

  • VOO: 0.03%
  • SPY: 0.09%

The lower expense ratio of VOO means investors retain more of their returns over the long term. For instance, on a $10,000 investment, VOO would cost $3 per year compared to SPY’s $9 per year​​.

Trading Volume & Liquidity

SPY boasts a significantly higher trading volume than VOO, which can translate into greater liquidity and narrower bid-ask spreads.

Higher liquidity can be advantageous for large institutional investors making substantial trades, but the cost advantage of VOO may make it more appealing to individual investors.

Share Price

The share price of SPY is generally higher than that of VOO. For example, here are the prices as of May 2024:

  • VOO: $488.30
  • SPY: $531.32

However, with the availability of fractional shares, this difference in share price becomes less significant for most individual investors.

Assets Under Management (AUM)

The total assets under management (AUM) provide insight into the fund’s size, popularity, and investor confidence. At the time of this article’s publishing, the AUM for these two funds is as follows:

  • VOO: $455 billion​
  • SPY: $531 billion

SPY’s larger AUM suggests higher confidence among large investors and institutions.

Performance Comparison of VOO vs. SPY

While VOO and SPY share the S&P 500 as their target benchmark, a closer look reveals how their expense ratios and tracking efficiency might influence their performance. This section dives into the historical returns of both ETFs to see if any meaningful differences emerge.

Historical Performance

Both VOO and SPY have very similar performance metrics since they track the same index. However, slight differences exist due to the varying expense ratios. The following chart shows the net asset value for both funds:

Time Period VOO SPY
1-Year 22.63% 29.71%
3-Year 8.02% 11.36%
5-Year 13.15% 14.89%
10-Year 12.37% 12.82%

With this data in mind, it’s important to remember that historical performance is not necessarily indicative of future trends.

Dividend & Interest Yields

The 30-day SEC yields for both ETFs are relatively similar, reflecting the income generated from the underlying S&P 500 companies.

  • VOO: 1.36%
  • SPY: 1.22%

Portfolio Composition

Since VOO and SPY track the S&P 500, they inherently offer broad market diversification. However, even within the index, there might be slight variations in sector weightings. This section analyzes the portfolio composition of both ETFs to see if any diversification nuances emerge.

Top Holdings

VOO and SPY have nearly identical top holdings, reflecting their shared objective of tracking the S&P 500 index. Here are the top ten holdings as of the most recent 2024 data:

Company Ticker VOO SPY
Microsoft Corp. MSFT 6.83% 7.12%
Apple Inc. AAPL 5.83% 6.24%
NVIDIA Corp. NVDA 5.04% 5.26% Inc. AMZN 3.77% 3.74%
Alphabet Inc. Class A GOOGL 2.26% 2.34%
Meta Platforms Inc. Class A META 2.23% 2.28%
Alphabet Inc. Class C GOOG 1.92% 1.98%
Berkshire Hathaway Inc. Class B BRK.B 1.70% 1.68%
Eli Lilly And Co LLY 1.47% 1.43%
Broadcom Inc. AVGO 1.35% 1.38%

The slight differences in percentages between VOO and SPY’s holdings can be attributed to a combination of factors, including minor tracking differences and the timing of rebalancing within their respective schedules.

Sector Allocation

The sector allocation for both ETFs is also very similar, given their shared goal of tracking the S&P 500 index.

Sector VOO SPY
Information Technology 29.20% 30.24%
Financials 13.10% 12.96%
Health Care 12.30% 12.10%
Consumer Discretionary 10.30% 9.97%
Communication Services 9.10% 9.27%
Industrials 8.80% 8.59%
Consumer Staples 6.20% 6.04%
Energy 4.10% 3.86%
Utilities 2.30% 2.46%
Materials 2.40% 2.32%
Real Estate 2.20% 2.19%

Tax Efficiency & Other Considerations

We’ve compared VOO and SPY on expense ratios, performance, and portfolio composition. However, the decision doesn’t end there. This section explores tax efficiency, investment goals, and other factors that might influence your choice between these two popular S&P 500 ETFs.

Tax Efficiency

Both VOO and SPY strive for tax efficiency by minimizing portfolio turnover. While Vanguard once held a patent for a structure that could potentially enhance tax efficiency in its ETFs, this patent expired in 2023. In light of this change, investors should watch to see if the tax efficiency of VOO and SPY will be more similar moving forward.

Turnover & Capital Gains

Both funds exhibit minimal turnover, reducing the likelihood of significant capital gains distributions. This characteristic is particularly beneficial for investors concerned about tax implications in taxable accounts.

The Bottom Line: Should You Invest in VOO or SPY?

Overall, both VOO and SPY are good choices for doctors and healthcare professionals who want to invest in funds that follow the S&P 500 index. They provide diversification, sector distribution, and consistent performance. Nonetheless, VOO holds an advantage thanks to its expense ratio and slightly improved tax efficiency. Over time, these minor discrepancies can add up to savings and better overall returns for investors with a long-term perspective. Ultimately deciding between VOO and SPY may depend on individual preferences, investment approaches, and personal financial objectives. It’s wise to consult with a financial advisor to determine the best option for your portfolio.

Additional Investment Fund Resources

Continue learning about different investment fund options by reading the other articles in this series:

The information provided in this blog post is for general informational purposes only and should not be construed as financial advice. For specific financial counsel on investments, we strongly recommend seeking the guidance of a qualified expert.

Published on May 22, 2024

Written by The Influent Staff

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