What makes a good investment strategy? How can you grow your investment portfolio with the right mix of diversification and risk that suits your needs? Let’s dive into VOO vs. SPY to see which one might be better for you.
When selecting investment portfolios, you want the best options available. Past performance and high yields are key factors most investors consider to avoid losing money. But what publicly traded opportunities are there to include in your portfolio?
S&P ETFs are very popular among investors. They track the S&P 500 index, which includes stocks from the 500 largest companies in the US. S&P ETFs are likely to withstand market crashes and are cheaper to maintain.
Two of the most popular ETFs today are the Vanguard S&P 500 ETF (VOO) and the SPDR S&P 500 Trust ETF (SPY). Both track the large-cap index to help investors gain exposure to the US market and diversify their portfolios easily.
Although both track the S&P 500, they are not identical. Let’s compare them.
VOO is a well-known Vanguard index fund aiming to match the performance of the S&P 500, which tracks large-cap stocks. It uses an index investment approach, investing in stocks that make up the index and holding them in almost the same proportions. However, VOO does not disclose its holdings daily, unlike some of its peers. Despite this, it reinvests dividends effectively.
SPY, on the other hand, is one of the most liquid ETFs, easy to trade, and has one of the lowest trading costs at 0.09%. It tracks the S&P 500 index, chosen by the S&P committee to represent the large-cap space in the US. SPY is a unit investment trust (UIT) that fully replicates its index and does not reinvest dividends between distributions, which may slightly impact its performance in up markets and downtrends. This makes SPY a preferred trading vehicle.
Here are some key differences between the two ETFs:
The top 5 holdings in both SPY and VOO are Microsoft, Apple, Amazon, Facebook, and Alphabet (Google), making up 20% of the total assets of the fund. Both ETFs have a similar composition.
In terms of annualized returns, both perform closely to the benchmark, with VOO slightly outperforming. The S&P’s consistent strong performance is due to the US economy’s dynamism and strength.
VOO has a lower expense ratio at 0.03% compared to SPY’s 0.9%, leading to higher annual returns for VOO. However, SPY is more liquid for options trading.
Frequently asked questions about VOO vs. SPY:
VOO has a stronger corporate structure and lower expense ratio, making it a good buy for many investors. Both funds are similar in strategies, holdings, and performance.
VOO pays a dividend on December 27th, with an annual dividend of $5.29 per share last year. VOO is great for those seeking lower volatility and potentially better annual returns. However, the difference between VOO and SPY is not significant enough to warrant selling SPY for VOO if you’re already seeing gains.
For traders interested in options, SPY might be better due to its higher trading volume in options. Higher fees are less impactful when holding the fund for shorter periods. SPY is ideal for options trading, while VOO is suited for long-term passive investing.
If you plan to trade more frequently, SPY might be the better choice as each small spread can translate into more profit. The expense ratio is less significant in this case. However, remember that past performance does not guarantee future results.
Both VOO and SPY are solid equity options for your portfolio. Any portfolio manager or financial advisor would agree that these products can fit your investment goals, as long as they align with your risk tolerance and financial capacity. Diversification is crucial, especially in a volatile market. Learning to hedge your investments is key to protecting your money.
In summary, these investment strategies can help you achieve your financial goals and support your retirement planning.