VOO vs SPY Comparison: Costs, Tracking, and Performance

Introduction: VOO vs SPY Comparison for Smart ETF Investors

The VOO vs SPY comparison continues to be one of the most important decisions ETF investors face, whether you're a beginner or building a long-term wealth strategy. Both ETFs track the S&P 500, both offer diversified exposure to the top U.S. companies, and both are among the most popular index funds in the world. However, despite their similarities, subtle differences in fees, structure, liquidity, and tracking efficiency can materially impact long-term returns. Understanding these differences empowers you to choose the ETF that best aligns with your investment style and cost expectations.

In the world of ETFs, small numbers add up much faster than most people realize. A difference of 0.01% in expense ratio might seem insignificant, yet compounded over decades, it could affect thousands of dollars in total returns. Likewise, tracking error — the tiny gap between an ETF’s performance and the underlying index — matters more when markets are volatile or when investors prioritize precision. Because the S&P 500 is foundational for so many portfolios, the VOO vs SPY comparison deserves careful analysis, especially for long-term holders.

In this guide, we break down the true cost of ownership, liquidity differences, performance variations, and how each fund behaves in different market conditions. To expand your ETF knowledge beyond S&P 500 funds, explore related posts like Volatile Market Strategies: Using VIX ETFs for Smart Investment Moves or learn how to select less-traded ETFs wisely in ETF Liquidity Secrets: How to Judge Less-Traded Funds Wisely.
With that foundation set, let’s dive into what truly separates VOO and SPY.

Category	VOO (Vanguard S&P 500 ETF)	SPY (SPDR S&P 500 ETF Trust)
Expense Ratio	0.03% — one of the lowest in the industry	0.0945% — over 3× higher than VOO
Tracking Error	Very low due to efficient Vanguard structure	Slightly higher, but still minimal
Liquidity	High liquidity; tight bid–ask spreads	Highest-traded ETF in the world; extremely tight spreads
AUM (Assets Under Management)	~$1T	~$500B
Structure	Open-ended Vanguard fund	Unit investment trust (older structure)
Dividend Reinvestment	Yes — allows automatic reinvestment	No DRIP inside the fund (paid out, investors reinvest manually)
Ideal For	Long-term investors minimizing cost	Active traders, options users, and institutions
Options Liquidity	Good	Best options liquidity in the ETF market
Total Cost of Ownership	Lower (due to lower fee + minimal tracking error)	Slightly higher over long periods
Performance Difference (10 years)	Nearly identical (<0.05% difference annually)	Nearly identical

1. Expense Ratios: The Core of the VOO vs SPY Comparison

When evaluating the VOO vs SPY comparison, the first thing most investors check is the expense ratio — the annual cost charged by the ETF provider to manage the fund. This cost directly reduces returns, especially over long periods. Here’s how the two ETFs compare:

• VOO (Vanguard S&P 500 ETF): 0.03%

• SPY (SPDR S&P 500 ETF Trust): 0.09%

At first glance, the difference appears small. However, over a 30-year investment horizon, the extra 0.06% in SPY’s fee structure can significantly impact overall performance. For example, on a $50,000 investment growing at 7%, the cumulative fee difference could exceed several thousand dollars. Vanguard built its brand around low-cost index investing, while SPY, the first ETF ever created, retains slightly higher fees due to legacy structure and liquidity advantages.

Another important detail is fund structure. SPY is a unit investment trust (UIT), which limits some reinvestment strategies and dividend flexibility. VOO, structured as a traditional ETF, can reinvest dividends more efficiently, contributing to marginally better compounding.

Therefore, when prioritizing low fees and long-term wealth accumulation, VOO typically holds the advantage. But expense ratio is not the only factor — liquidity and trading efficiency may tilt the balance for active traders.

2. Liquidity and Tradability: How VOO vs SPY Behave in Real Markets

The next dimension of the VOO vs SPY comparison is liquidity — how easily and cheaply you can buy or sell shares. SPY is the most actively traded ETF on the planet, averaging tens of billions in daily volume. This makes it extremely attractive for day traders, options traders, and institutions executing large orders.

Key liquidity characteristics:

• SPY

  • Extremely high trading volume

  • Tight bid-ask spreads

  • Deep options market

  • Preferred for short-term traders

• VOO

  • Lower volume than SPY but still very high

  • Slightly wider spreads

  • More cost-efficient for long-term investors

  • Still excellent liquidity for retail investors

In practical terms, SPY’s massive liquidity reduces slippage — the difference between the expected and executed price — which can matter for frequent traders. Meanwhile, VOO’s slightly lower liquidity doesn’t meaningfully affect most investors who buy-and-hold.

If you rarely trade and focus on minimizing long-term costs, VOO may remain the superior pick. But if you use active trading strategies, SPY’s liquidity profile could justify the higher expense ratio. To learn the nuances of navigating less liquid ETFs, refer to ETF Liquidity Secrets, linked above.

For detailed expense ratios and historical performance of VOO and SPY, check Morningstar’s ETF pages for VOO and SPY.

3. Tracking Error: The Hidden Factor in the VOO vs SPY Comparison

Another crucial aspect of the VOO vs SPY comparison is tracking error — how closely each ETF mirrors the performance of the S&P 500. Ideally, an ETF should exactly replicate its index, but real-world frictions create small deviations.

Historically:

• VOO often exhibits slightly lower tracking error

• SPY remains extremely accurate but occasionally underperforms by fractions of a percent

Why does VOO typically track more efficiently?

• Vanguard’s ETF share class structure allows for tax-efficient share conversions.

• Dividend reinvestment mechanisms are more flexible.

• Lower fees help reduce performance drags over time.

SPY’s unit investment trust structure restricts reinvestment options and limits securities lending — both of which can influence tracking precision.

That said, both ETFs are exceptionally accurate. For long-term investors, the slightly tighter tracking error of VOO may contribute to marginally higher real-world returns. In fast-moving markets, however, SPY’s liquidity may appeal more to traders who need precision execution over tracking purity.

4. Performance History: Does VOO or SPY Deliver Better Returns?

When analyzing the VOO vs SPY comparison, investors often ask which ETF performs better. The surprising answer: they are nearly identical, with differences often measured in hundredths of a percent.

Over 10-year periods, VOO often edges out SPY by small margins due to:

• Lower fees

• Slightly better tracking

• More efficient dividend reinvestment

However, SPY can outperform on individual days due to price discovery advantages during market stress. Its trading volume makes it one of the primary vehicles used by institutions for hedging and rapid allocation. Therefore, SPY might reflect the “true market price” in volatile conditions slightly faster than VOO.

But for long-term investors?
The difference is negligible in most years — yet mathematically favors VOO over decades.

If your strategy involves smart volatility management using ETFs, refer to Volatile Market Strategies: Using VIX ETFs, linked above, to learn how volatility-linked products behave differently from broad market funds like VOO and SPY.

5. Total Cost of Ownership: The Real Winner in the VOO vs SPY Comparison

True ETF evaluation goes beyond the expense ratio alone. The total cost of ownership (TCO) includes:

• Expense ratios

• Bid-ask spread

• Tracking error

• Tax efficiency

• Slippage

• ETF structure

When calculating total cost over decades, the advantage typically leans toward VOO.

Why VOO Often Wins TCO:

• Lower annual fees

• Slightly better tracking

• Better dividend reinvestment

• Vanguard tax structure efficiencies

• Lower long-term drag on compounding

Why Some Still Prefer SPY:

• Superior liquidity

• Smaller spreads for traders

• Best-in-class options market

• Institutional familiarity

For a buy-and-hold investor, VOO usually results in higher net returns. For an active trader or options strategist, SPY’s superior liquidity may justify its slightly higher cost.

In evaluating TCO, the choice depends on your personal investment behavior — not just the ETF’s published numbers.

6. Which ETF Should You Choose? VOO vs SPY Comparison Summary

To finalize the VOO vs SPY comparison, here’s a practical framework:

Choose VOO if:

• You are a long-term investor

• You prioritize low fees

• You want minimal tracking error

• You rarely trade

• You prefer better dividend efficiency

• You want Vanguard’s tax-efficient structure

Choose SPY if:

• You trade frequently

• You use options extensively

• You need deep liquidity

• You manage very large orders

• You rely on intra-day precision

Both ETFs are excellent. The choice depends entirely on your strategy, holding period, and trading frequency.

Conclusion: The Smart Way to Decide Between VOO and SPY

The VOO vs SPY comparison reveals two ETFs that are more similar than different — yet the differences that do exist can matter depending on your investing style. Both funds provide outstanding exposure to the S&P 500, both are highly liquid, and both offer the diversification that makes index investing so powerful. However, small distinctions in fees, structure, liquidity, and tracking efficiency can influence performance over long horizons.

If you're a long-term investor who values low fees and maximum compounding efficiency, VOO is often the superior choice. If you’re an active trader, SPY’s unmatched liquidity and options depth may provide more flexibility. Importantly, neither choice is wrong — each ETF excels in its intended purpose.

As you continue mastering ETF strategies, it’s essential to look beyond headlines and dig into underlying mechanics. Understanding total cost of ownership, tracking error, tax efficiency, and liquidity empowers you to build smarter portfolios. For more advanced strategies, explore posts like VIX ETF trading or liquidity assessment, both linked earlier. Remember: long-term success comes from informed decisions, consistent contributions, and disciplined execution.

Choosing between VOO and SPY isn’t just selecting an ETF — it’s aligning your investment approach with your long-term goals. With clarity and strategy, either fund can help you build lasting wealth.

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Key Takeaways

1. VOO offers lower long-term costs due to a significantly lower expense ratio.

Small fee differences compound into meaningful returns over decades.

2. SPY remains the top choice for traders due to unmatched liquidity and tight spreads.

This makes execution faster and slippage smaller.

3. Both ETFs track the S&P 500 extremely well, but VOO edges out SPY in tracking efficiency.

Minor structural differences impact long-term accuracy.