IVV vs. SPY: Which S&P 500 ETF Is the Better Buy for Long-Term Investors?

iShares Core S&P 500 ETF (NYSEMKT:IVV) provides more affordable access to the S&P 500 than State Street SPDR S&P 500 ETF (NYSEMKT:SPY), offering a lower expense ratio and a higher distribution yield.

Both funds aim to mirror the performance of the S&P 500, the primary benchmark for the U.S. large-cap market. While the State Street trust is the industry's oldest and most liquid trading tool, the iShares fund has grown significantly by appealing to long-term investors through its cost efficiency. This match-up explores whether the lower-cost option is the more effective building block for a portfolio.

Snapshot (cost & size)

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

The iShares fund is noticeably more affordable, charging just 0.03% compared to the 0.09% fee for the State Street trust. This expense gap of 0.06 percentage points can compound over time, contributing to the iShares fund's higher distribution yield.

Performance & risk comparison

What's inside

iShares Core S&P 500 ETF provides exposure to the U.S. large-cap market with a heavy tilt toward information technology at 40%, followed by financials at 11%, and communication at 10%. It holds 505 securities, and its largest positions include Nvidia (NASDAQ:NVDA) at 7.86%, Apple (NASDAQ:AAPL) at 7.47%, and Microsoft (NASDAQ:MSFT) at 5.99%. It was launched in 2000. iShares Core S&P 500 ETF has paid $8.40 per share over the trailing 12 months, which on its recent ~$775.2 share price works out to a 1.1% yield.

State Street SPDR S&P 500 ETF maintains a nearly identical portfolio, with technology at 41%, financial services at 11%, and communication services at 10%. It holds 504 securities, and top holdings include Nvidia at 7.86%, Apple at 7.46%, and Microsoft at 5.99%. It was launched in 1993. State Street SPDR S&P 500 ETF has paid $7.58 per share over the trailing 12 months, which on its recent ~$771.8 share price works out to a 1% yield.

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

Which looks like the better buy

There is plenty to consider when deciding which ETF deserves a place in your portfolio. Investors must weigh several factors, including returns, dividends, and costs. However, when comparing the iShares Core S&P 500 ETF and the SPDR S&P 500 ETF Trust, the decision largely comes down to fees.

Both funds track the S&P 500, providing exposure to 500 of the largest U.S. companies. Their nearly identical holdings mean investors can expect similar long-term performance and dividend income. Where the two funds differ, however, is in their expense ratios.

With an annual expense ratio of just 0.03%, IVV charges one-third of SPY's 0.09%. While that difference might seem insignificant, even small fees can add up over decades of investing, particularly as portfolios grow.

For long-term investors looking for straightforward, low-cost exposure to America's largest companies, IVV gets the nod. SPY's exceptional liquidity remains valuable for active traders, but buy-and-hold investors have little reason to pay three times as much for essentially the same exposure.

RJ Fulton has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.