Best S&P 500 ETFs: VOO, SPY, and IVV Compared
Why S&P 500 ETFs Are the Default Choice
Most actively managed funds underperform the S&P 500 over a 15-year window. That’s the core argument for passive investing: if you can’t beat the index consistently, own it cheaply. S&P 500 ETFs deliver this with minimal expense ratios, tax efficiency, and instant diversification across sectors.
For most investors building a long-term portfolio, an S&P 500 ETF serves as the core equity holding. It pairs well with bond ETFs for balance and sector ETFs for tactical tilts.
Top 3 S&P 500 ETFs Compared
| Feature | VOO (Vanguard) | SPY (SPDR) | IVV (iShares) |
|---|---|---|---|
| Expense Ratio | 0.03% | 0.0945% | 0.03% |
| AUM | ~$500B+ | ~$550B+ | ~$450B+ |
| Structure | Open-end ETF | Unit Investment Trust | Open-end ETF |
| Dividend Reinvestment | Yes (auto) | No (cash held) | Yes (auto) |
| Avg. Daily Volume | High | Highest | High |
| Securities Lending | Limited | No | Yes |
| Best For | Long-term investors | Active traders | Long-term investors |
VOO: Vanguard S&P 500 ETF
VOO is the go-to for buy-and-hold investors. At 0.03% expense ratio, you pay just $3 per year on a $10,000 investment. Vanguard’s open-end structure allows automatic dividend reinvestment, which reduces cash drag compared to SPY.
VOO is also part of Vanguard’s unique ownership structure, meaning the fund company is owned by the funds themselves — aligning incentives with shareholders. If your time horizon is years or decades, VOO is hard to beat.
SPY: SPDR S&P 500 ETF Trust
SPY was the first ETF ever listed in the U.S. (1993) and remains the most liquid. It trades billions of dollars daily, making it the preferred vehicle for institutional traders and options strategies like covered calls.
The trade-off: SPY’s unit investment trust (UIT) structure means dividends are held in cash until distribution, creating slight cash drag. Its expense ratio of 0.0945% is also higher than VOO and IVV. For short-term trading and options, SPY wins. For long-term holding, it’s slightly less efficient.
IVV: iShares Core S&P 500 ETF
IVV matches VOO on expense ratio at 0.03% and uses the same open-end fund structure. BlackRock’s iShares platform is massive, and IVV benefits from securities lending revenue that can partially offset costs.
IVV is essentially interchangeable with VOO for most investors. The choice often comes down to which brokerage platform you use and whether you prefer Vanguard or iShares for your other holdings.
How to Choose the Right S&P 500 ETF
| If You Are… | Best Pick | Why |
|---|---|---|
| A long-term buy-and-hold investor | VOO or IVV | Lowest cost, dividend reinvestment |
| Trading options on the S&P 500 | SPY | Most liquid options chain by far |
| Building a Vanguard portfolio | VOO | Seamless integration, mutual fund equivalent (VFIAX) |
| Using iShares/BlackRock platform | IVV | Consistent iShares ecosystem |
| Day trading or hedging | SPY | Tightest spreads, deepest liquidity |
Performance: Do They Actually Differ?
All three ETFs track the same index, so long-term performance differences are minimal — typically a few basis points per year. The primary variance comes from expense ratios and cash drag. Over a 10-year period, VOO and IVV have marginally outperformed SPY purely because of their lower fees and dividend reinvestment advantage.
That said, the difference on a $100,000 portfolio is roughly $60-65 per year. It matters at scale, but for smaller portfolios, pick whichever fits your brokerage best.
Beyond the Big Three: Other Options
A few other S&P 500 ETFs worth knowing:
| ETF | Expense Ratio | Note |
|---|---|---|
| SPLG (SPDR Portfolio) | 0.02% | State Street’s low-cost alternative to SPY |
| BKLC (BNY Mellon) | 0.00% | Zero expense ratio; tracks a large-cap index (not exactly S&P 500) |
| FXAIX (Fidelity) | 0.015% | Mutual fund, not ETF — great for Fidelity accounts |
Key Takeaways
- VOO, SPY, and IVV all track the S&P 500 — performance differences are minimal over time.
- VOO and IVV charge 0.03%; SPY charges 0.0945% — the gap adds up over decades.
- SPY is the best choice for options trading and short-term strategies due to superior liquidity.
- VOO and IVV automatically reinvest dividends; SPY holds them as cash until distribution.
- For most long-term investors, VOO or IVV is the optimal S&P 500 ETF pick.
Frequently Asked Questions
Is VOO better than SPY?
For long-term investors, yes. VOO has a lower expense ratio (0.03% vs. 0.0945%) and automatically reinvests dividends. SPY is better for active traders and options strategies because of its unmatched liquidity.
Can I hold more than one S&P 500 ETF?
You can, but there’s no real benefit since they all track the same index. Holding both VOO and IVV doesn’t add diversification — it just complicates your portfolio. Pick one and allocate the rest to different asset classes.
Are S&P 500 ETFs good for beginners?
They’re often the first investment recommended for beginners. You get exposure to 500 large U.S. companies in one trade, with very low fees and no stock-picking required. Pair it with dollar-cost averaging for a simple strategy.
What’s the difference between an S&P 500 ETF and an index fund?
An ETF trades on an exchange like a stock throughout the day. An index fund (mutual fund) is priced once daily at market close. Both can track the S&P 500 — the ETF version just offers intraday trading flexibility and potentially better tax efficiency.
How much should I put in an S&P 500 ETF?
That depends on your overall asset allocation. A common starting point is 60-80% equities for younger investors, with an S&P 500 ETF as the core equity holding. Adjust based on your risk tolerance, time horizon, and whether you want international or sector exposure.