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VOO Vs. SPY: Which S&P 500 ETF Should You Buy?
The small difference between these otherwise identical ETFs.
Continuing with the Warren Buffett theme and investing in low-cost S&P 500 index funds, I wanted to discuss the difference between the Vanguard S&P 500 ETF (VOO) and SPDR® S&P 500 ETF Trust (SPY).
When I first started learning from Warren Buffett and heard his advice to invest in the cheapest S&P 500 index fund in middle school, I searched for the ETF with the lowest expense ratio and came across VOO.
VOO was all I had known for some years until Berkshire Hathaway and Warren Buffett finally decided to do what they advised and bought into two S&P 500 index funds in 2019.
Berkshire Hathaway’s investment in VOO and SPY surprised me when I saw that SPY’s expense ratio was three times that of VOO.
Without much experience or understanding of SPY and the markets, I could not understand why someone like Warren Buffett, who once said to put your money in the lowest cost S&P 500 index fund, would put a significant chunk of money in an ETF that’s effectively three times more expensive than another one that does the same thing.
But as I spent more time researching various investing strategies and gaining more insight into the financial world, I’ve begun to understand why someone might buy SPY over VOO.
SPY Vs. VOO: When Investors Should Buy SPY
Although SPY’s expense ratio is three times that of VOO, it has one advantage over VOO. SPY is the oldest ETF on the market and one of the most-traded funds.
The large trading volume for SPY makes SPY a good choice for options traders and large institutions.
For example, if you plan to write covered calls on your portfolio, SPY’s large trading volume will give you more option premiums than VOO due to the greater demand.
Large institutions also benefit from SPY because SPY’s large trading volume can sustain the millions of dollars going in and out of SPY better than many other assets.
For reference, SPY’s trading volume is around 79 million shares, while VOO sits at 3 million. That’s a 16X difference.
