SPY vs. VOO 2024: Which S&P 500 ETF Wins for Your Portfolio?

• What Exactly Are SPY and VOO?
• How Do Expense Ratios Actually Impact Returns?
• Why Does Liquidity Matter Beyond Just Trading Volume?
• What's the Real Tax Difference Between These ETFs?
• Which ETF Performs Better in Market Downturns?
• Who Really Should Choose Which ETF?
• What About the New Competitors?
• Final Verdict: It's About Your Investment Personality
• SPY vs VOO: Your Questions Answered

The eternal debate between SPY and VOO continues as investors weigh liquidity against cost efficiency. While both ETFs track the S&P 500 with near-identical performance, their structural differences create distinct advantages. SPY dominates with $432 billion in assets and razor-thin spreads perfect for traders, whereas VOO's 0.03% expense ratio and automatic dividend reinvestment make it a compounding machine for long-term holders. This deep dive reveals how a $10,000 investment in 2010 WOULD have played out differently, why tax treatment varies, and which ETF suits day traders versus retirement accounts. Discover the hidden nuances that could cost you thousands over decades.

What Exactly Are SPY and VOO?

Imagine two identical twins - same DNA, different personalities. That's SPY (SPDR S&P 500 ETF Trust) and VOO (Vanguard S&P 500 ETF) in a nutshell. Both mirror the S&P 500 index, but their creation stories reveal why they behave differently. SPY burst onto the scene in 1993 as the OG ETF, pioneered by State Street Global Advisors. It's like the Beatles of ETFs - revolutionary when launched, now with $432 billion in assets (as of Q2 2024, per State Street reports). VOO entered the game in 2010 as Vanguard's cost-efficient challenger, currently holding $319 billion according to Vanguard's latest filings.

The structural differences matter more than you'd think. SPY operates as a Unit Investment Trust (UIT), an old-school structure that holds dividends in cash like a piggy bank until quarterly payouts. VOO uses a modern open-ended mutual fund structure that instantly reinvests dividends - think of it as a turbocharged compounding machine. During the 2020 market crash, this difference meant VOO's reinvested dividends bought more shares at depressed prices, while SPY holders waited for scheduled distributions.

How Do Expense Ratios Actually Impact Returns?

Let's talk real money. SPY charges 0.09% annually versus VOO's 0.03% - a seemingly trivial 0.06% difference. But compound that over 30 years and the gap widens like a canyon. Using Portfolio Visualizer data from 2011-2021 (VOO's first full decade), a $10,000 investment grew to $42,187 in SPY versus $42,893 in VOO - a $706 difference just from fees. Extend that to a $100,000 portfolio over 30 years, and we're talking about $15,000+ in additional gains from VOO's cost advantage, assuming 8% annual returns.

The fee war has intensified recently. In 2023, State Street introduced SPYG (SPY Growth) with a 0.04% fee, directly targeting Vanguard's pricing. Meanwhile, Vanguard's patented dual-share class structure (combining ETF and mutual fund assets) gives it economies of scale that keep fees razor-thin. As Bloomberg reported in March 2024, Vanguard's total S&P 500 assets across all share classes now exceed $900 billion, creating unbeatable pricing power.

Why Does Liquidity Matter Beyond Just Trading Volume?

SPY's $28 billion average daily trading volume (per SPDR data) creates a liquidity superhighway. The bid-ask spread typically sits at 0.01%, meaning traders lose virtually nothing on entry/exit. Compare that to VOO's still-impressive $3 billion daily volume where spreads average 0.02-0.03%. For a $50,000 trade, that's $5 slippage on SPY versus $15 on VOO - negligible for long-term investors but crucial for algorithmic traders.

Options traders particularly favor SPY. Its massive liquidity supports tighter option spreads - the January 2025 $500 calls show a $0.10 bid-ask spread on SPY versus $0.30 on VOO according to ThinkorSwim data. This liquidity premium explains why SPY options account for 15% of all U.S. ETF option volume (CBOE Q1 2024 report). That said, VOO's options market has grown 40% year-over-year as more investors discover its cost advantages.

What's the Real Tax Difference Between These ETFs?

Vanguard's secret sauce lies in its ETF share class structure. By creating ETF shares as a separate class of its mutual funds, VOO can offload low-cost-basis shares during redemptions, minimizing capital gains distributions. IRS filings show VOO hasn't distributed capital gains since inception, while SPY distributed $0.43 per share in 2021 (0.09% of NAV). For a $100,000 portfolio in the 32% tax bracket, that's a $288 annual tax advantage for VOO.

Dividend timing creates another tax nuance. SPY's UIT structure means December dividends get paid in January, pushing tax liability to the next year. During the 2022 market downturn, this allowed SPY investors to defer taxes on $1.82/share of dividends. VOO's strict quarterly schedule offers no such flexibility - dividends hit your 1099-DIV in the quarter earned regardless of market conditions.

Which ETF Performs Better in Market Downturns?

Historical data reveals surprising resilience differences. During the COVID-19 March 2020 crash, SPY's UIT structure forced it to maintain strict index weights, while VOO's open-end format allowed slight deviations. Result? VOO recovered 0.15% faster by mid-April (Bloomberg data). Conversely, in the 2018 Q4 correction, SPY's liquidity advantage meant it traded at just 0.02% below NAV during peak volatility versus VOO's 0.07% discount.

The 2022 bear market highlighted another quirk - SPY's higher share price ($380 range) versus VOO ($340) meant fractional share investors could allocate cash more precisely in dollar-cost averaging. Robinhood data shows VOO saw 23% more fractional share purchases during the downturn, suggesting retail investors preferred its lower per-share cost when adding small amounts.

Who Really Should Choose Which ETF?

SPY's liquidity is unbeatable. The ability to MOVE millions with minimal slippage makes it the choice for institutions and active traders. Thinkorswim data shows SPY options account for 3x more open interest than VOO.

VOO's cost advantage shines in tax-advantaged accounts where trading frequency doesn't matter. A Fidelity study showed VOO in IRAs outperformed SPY by 0.8% annually over 10 years purely on expense ratios.

VOO's tax efficiency gives it an edge, especially for high-income investors. Morningstar calculates a 0.12% annual after-tax advantage for VOO in the 35% bracket.

VOO's automatic reinvestment compounds faster. A $10,000 investment with dividends reinvested would have grown to $44,200 in VOO versus $43,600 in SPY from 2010-2023 (Vanguard backtest data).

What About the New Competitors?

The S&P 500 ETF space isn't static. New entrants like BlackRock's IVV (0.03% fee) and Invesco's SPLG (0.02% fee) are pressuring both SPY and VOO. SPLG's $50/share price makes micro-investing easier, while IVV combines VOO-like costs with SPY-level liquidity. However, neither has cracked the $200B AUM mark yet, showing the power of first-mover advantage in ETFs.

Perhaps the most disruptive development is Schwab's S&P 500 Index Fund (SWPPX) with a 0.02% fee and $1 minimum investment. While not an ETF, its mutual fund structure allows automatic investing down to the penny - a feature ETFs still can't match. As of June 2024, SWPPX has attracted $85 billion, proving there's still room for innovation in this crowded space.

Final Verdict: It's About Your Investment Personality

Choosing between SPY and VOO isn't about picking the "better" ETF - it's about matching the tool to your strategy. Active traders will always prefer SPY's liquidity, while set-and-forget investors benefit from VOO's cost efficiency. The $64,000 question (or rather, the $15,000-over-30-years question) comes down to whether you value trading flexibility or compounding power more.

One pro tip from the BTCC research team: There's no rule against owning both. Some investors use SPY for short-term plays and VOO for Core holdings. Just remember - as with any investment - past performance doesn't guarantee future results. This article does not constitute investment advice.

SPY vs VOO: Your Questions Answered

Which has higher returns, SPY or VOO?

Historically, VOO slightly outperforms SPY due to its lower fees. From 2010-2023, VOO returned 14.2% annually vs SPY's 14.1% (Morningstar data). The gap widens over longer periods.

Can I day trade VOO like SPY?

While possible, VOO's lower trading volume means wider spreads. SPY's $28B daily volume makes it better for frequent trading, with $0.01 spreads versus VOO's $0.03 typical spread.

Do SPY and VOO pay the same dividends?

Yes, but differently. Both hold the same stocks, but VOO reinvests dividends immediately while SPY holds them as cash until quarterly distribution dates.

Which is better for Roth IRA?

VOO's lower fees make it ideal for long-term holdings like Roth IRAs. The 0.06% annual difference could mean thousands more over decades of tax-free growth.

Why does SPY have higher volume than VOO?

As the first S&P 500 ETF (1993), SPY became the institutional standard. Its age, options market, and legacy systems integration give it entrenched advantages.