Vanguard S&P 500 ETF Offers Lower Fees Than SPDR Rival

The primary distinction between Vanguard S&P 500 ETF (NYSEMKT:VOO) and State Street SPDR S&P 500 ETF Trust (NYSEMKT:SPY) lies in the expense ratio and the specific liquidity needs of the investor.

For most long-term retail investors, the choice between these two giants often comes down to internal costs and how efficiently the fund tracks its benchmark. While both provide broad-market exposure to the largest companies in the United States, their historical roots and total assets under management differ.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

The Vanguard fund is more affordable, featuring a 0.03% expense ratio that is one-third the cost of the SPDR trust. Investors might also notice a slightly higher payout from VOO, which currently carries a 1.1% dividend yield. The 0.06 percentage point difference in fees may seem negligible over a single year, but it can compound over decades.

Performance & risk comparison

What's inside

The Vanguard S&P 500 ETF holds 505 positions and was launched in 2010. Its largest positions include Nvidia at 7.85%, Apple at 6.45%, and Microsoft at 4.9%. Its sector exposure includes technology at 35%, financial services at 12%, and communication services at 11%. This fund has a trailing-12-month dividend of $7.13 per share.

The State Street SPDR S&P 500 ETF Trust was launched in 1993 and holds 504 securities. Its top holdings include Nvidia at 8.4%, Apple at 7%, and Microsoft at 4.9%. The trust weights technology at 37.35%, financial services at 12%, and communication services at 11%. It paid $7.38 per share over the trailing 12 months.

For more guidance on ETF investing, check out the full guide at this link.

What it means for investors

An exchange-traded fund that tracks the S&P 500 index is one of the most foundational investments you can make. Some famous investors, like Warren Buffett, have even said that most retail investors would be well served to only invest in an S&P 500 index fund. But with several options out there, how should investors choose which S&P 500-tracking fund to add?

Both VOO and SPY track the S&P 500 by its total market capitalization. That means larger, more valuable companies, like Nvidia, Apple, and Microsoft, make up a larger percentage of the fund. The two funds’ max drawdowns, one-year returns, and five-year growth profiles are virtually identical, and their betas are both 1, which makes sense, as beta is a measurement of volatility compared to the benchmark S&P 500.

Ultimately, your choice may come down to the expense ratio, which is the fee that is paid out of your investment to the brokerage that manages the fund. VOO’s fee is 0.03%, while SPY’s is 0.09%. That’s $3 and $9, respectively, on a $10,000 investment, which may not seem like much. But let’s assume you invest $10,000 in one of these funds and add an additional $1,000 every year for 10 years. Assuming an average return of 10%, an investment in SPY would be worth $41,594.80, with fees totaling about $280. That same investment in VOO would be worth $41,781.29 in 10 years, and you would have paid $93.56 in fees.

Sarah Sidlow has positions in Apple, Microsoft, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Apple, Microsoft, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.