VOO, VTI, SPY, or IVV? How These 4 Index Funds Differ

The Vanguard S&P 500 ETF (NYSEMKT: VOO), the iShares Core S&P 500 ETF (NYSEMKT: IVV), the State Street SPDR S&P 500 ETF (NYSEMKT: SPY), and the Vanguard Total Stock Market ETF (NYSEMKT: VTI) are the four largest exchange-traded funds (ETFs) in the world. Combined, they manage roughly $3.5 trillion of investor money.

Based on their names, it would be easy to assume that they're interchangeable. They're not. Three of these ETFs track exactly the same index, but even they have differences that could make one better than the others, depending on your situation.

Considerations like fees, portfolio composition, and liquidity will all factor in.

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VTI vs. S&P 500: Thousands more stocks, not much difference

The Vanguard Total Stock Market ETF is the one fund out of this group that's meaningfully different from the others. It covers the entire investable U.S. stock market, roughly 3,500 stocks in total. It doesn't invest in only large-caps, like the S&P 500 does. It includes large-, mid-, and small-caps across all industry sectors.

On the surface, it might seem that owning 3,000 additional stocks would give you a significantly different portfolio composition. Actually, that's not really the case.

The reason is that this fund and the S&P 500 are market-cap weighted. Because the U.S. stock market is so top-heavy right now, the same stocks that dominate the index are also dominating the Vanguard Total Stock Market ETF. Overall, there's about 88% overlap between the two. In other words, only about 12% of the portfolio qualifies as mid- or small-cap stocks.

If you look at the comparative risk and return profiles of VTI and the S&P 500, they're going to be very similar. I like the inclusion of smaller stocks, even though they have a relatively minor effect.

VOO vs. IVV vs. SPY: Is there any real difference?

These ETFs obviously all track the same index, so there's no difference in composition. The difference between these funds mostly comes down to cost.

The VOO versus IVV debate is almost a dead heat. Both have identical 0.03% expense ratios. Both have huge assets under management (AUM). Both do about $5 billion in trading volume daily, and both have razor-thin trading spreads. The statistical profiles on both are nearly the same. This is one of the rare cases where these two ETFs are interchangeable.

The State Street SPDR S&P 500 ETF is a bit different. It's got an expense ratio of 0.0945%, making it the most expensive of the bunch. It's the original ETF, but it hasn't looked to compete with Vanguard and BlackRock on fees. The biggest reason for this is because it's used heavily for trading by larger institutions. It trades more than $30 billion in shares daily and is the most liquid ETF out there.

For regular retail investors, I think the Vanguard and iShares ETFs are the better choices because they're cheaper. SPY has its place, but I think it makes more sense to just go with the cheapest option.

Which ETF I'd actually buy

The easy answer for me is the Vanguard Total Stock Market ETF, because I actually own it!

There's nothing wrong with using an S&P 500 ETF as a core portfolio position. I personally prefer the all-cap coverage of a total stock market fund.

The inclusion of smaller company stocks has been a drag on recent performance. The Vanguard Total Stock Market ETF has trailed the Vanguard S&P 500 ETF by roughly 0.6% annually during the past decade. However, it's unlikely to be that way indefinitely. Small-caps often go through periods of outperformance as well, and the group is long overdue. It could be an especially attractive time, given that small-cap earnings are accelerating.

All these funds are strong long-term holdings for almost any portfolio. The differences are small, but they can matter over time.

David Dierking has positions in Vanguard Morningstar Total Stock Market ETF. The Motley Fool has positions in and recommends BlackRock and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.