The S&P 500 is the benchmark index by which many investors compare their returns. Many index investors use the S&P 500 (or the total stock market index) as the backbone of their portfolio. Warren Buffett has repeatedly said that ordinary investors should invest in an S&P 500 index fund for the stock portion of their portfolios.
However, new investors often get confused or even overwhelmed by the many different ways you can invest in the S&P 500 through exchange-traded funds (ETFs).
In this article, I’ll review the three largest S&P 500 ETFs (SPY, VOO, and IVV), and see which one is right for you.
SPDR S&P 500 ETF (SPY)
SPY was one of the first ETFs, having been founded in 1993. There were certainly index funds prior to 1993 — John Bogle founded Vanguard in 1974 and introduced the first index fund in 1975. But unlike index funds, which as mutual funds cannot be traded like individual stocks, SPY brought index funds to Wall Street. The ETF was incredibly popular, and the price could closely track the index, as arbitrageurs would take advantage of any discrepancy between the ETF price and the prices of the underlying S&P 500 components.
As of March 2020, SPY manages over $226 billion in assets, making it the largest S&P 500 ETF in the market (VFIAX is the largest S&P 500 index fund at over $500 billion in assets). The expense ratio is 0.095% per year, which is slightly higher than the other two ETFs we will review in this article.
iShares Core S&P 500 ETF (IVV)
IVV is the second-largest S&P 500 ETF, with over $153 billion in assets as of March 2020. The expense ratio is 0.04% per year, making it slightly cheaper than SPY.
Vanguard S&P 500 ETF (VOO)
Vanguard is the largest provider of index funds in the world. However, for S&P 500 ETFs, they only have the third-largest ETF. As of March 2020, VOO manages over $110 billion in assets. The expense ratio is 0.03% per year, making it cheaper to own than IVV or SPY.
So Which S&P 500 ETF Should I Invest In?
The differences between SPY, IVV, and VOO are relatively small. You won’t go significantly wrong by investing in any of these three ETFs.
However, since VOO has the lowest expense ratio for an S&P 500 ETF, I would choose VOO over IVV or SPY.
In the past, IVV was preferred over VOO for Fidelity investors because IVV could be traded commission-free. Now that Fidelity (and many other brokerages) offer commission-free trading for all stocks, investors can choose index ETFs based on expense ratio, and I would recommend VOO over IVV even for Fidelity investors.
Conclusion
SPY, VOO, and IVV are all excellent, low-cost options to invest in the S&P 500 index. In general, you can’t go wrong with either of these three options. But if you must choose one, I would choose VOO for its slightly lower expense ratio (0.03%) compared to IVV (0.04%) or SPY (0.095%).
What do you think? Which S&P 500 ETF do you use in your portfolio?
Great breakdown of the various indices available.
If given the choice would you choose an index that follows the S&P 500 or a total market index.
It seems they almost have the same holdings given both are market weighted and thus heavily composed of the largest companies anyway.
I basically have tax loss harvested from one to the other. But curious which would you prefer if stuck with one.
I have owned SPY in the past. None currently. I enjoy slicing up my portfolio into small cap value etc. I do own some QQQ.
I’m completely new to investing. I understand the S&P 500 is the go-to ETF for investors, however, there are different S&P 500 from SPY, VOO, and IVV.
My question is, CAN and SHOULD we choose “more than one” of these S&P 500 from all three SPY, VOO, and IVV in our portfolio? Basically, are there multiple benefits to choosing more than one even though each S&P 500 essentially contains the same 500 indexes (so as not to put all eggs in one basket in case one, either SPY, VOO, or IVV is no longer offered or disappears)? And what would happen if one of the S&P 500 (either from SPY, VOO, IVV is no longer offered or disappears)? Would the 500 company indexes within that disappeared S&P 500 transfer over to the other S&P 500 ETF? (Example: Pretend SPY is no longer available; would the funds from SPY transfer over to either VOO or IVV, or would the fund automatically be sold?)
I’m sorry I’m just trying to wrap my head around all this being completely new in the investing world and learning all these investing terms.
This article should probably be re-written or re-published now that most of these ETF’s can be bought for free from any brokerage (or am i wrong in that assumption?)
Looking forward to an update.
I agree that this article will need to be revised, as at some (but not all) brokerages, all stock trading is now commission-free.
IVV pays highest dividend, so has highest total return. Forget about expense ratio, look at the distributions (dividends) and share price. That is the bottom line comparison. No? Also — might consider bid/ask spread (SPY best), but enter limit orders only is best
Thanks for the analysis. As of 2021, IVV expense ratio is at 0.03%, same as VOO.
https://www.ishares.com/us/products/239726/ishares-core-sp-500-etf
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