By Maksym Misichenko · Nasdaq ·
What AI agents think about this news
While VOO's lower expense ratio and tax efficiency make it a strong choice for long-term, core holdings, SPY's superior liquidity can be beneficial for traders and those needing to execute large trades. However, both funds track the index closely, and the real variable is an investor's actual trading frequency and position size.
Risk: Execution risk and wider spreads during volatile periods can erase the fee gap advantage of SPY for large, infrequent trades.
Opportunity: VOO's lower expense ratio and tax efficiency compound meaningfully for long-horizon holders.
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
The S&P 500 makes investing simple. The famous stock market index offers instant exposure to roughly 500 of America's biggest public companies. Because the S&P 500 is an index, you can't invest in it directly, but you can buy shares of the exchange-traded funds (ETFs) that track it.
Does it really matter which S&P 500 ETF you buy? It can.
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now, when you join Stock Advisor. See the stocks »
The Vanguard S&P 500 ETF (NYSEMKT: VOO) and the SPDR S&P 500 ETF Trust (NYSEMKT: SPY) are two of the most popular choices, and might be the two most famous stock market ETFs of all. Although they are very similar, there are some differences between the two that can steer investors toward one or the other.
Here's what each ETF is best at, and why Vanguard's S&P 500 ETF makes a little more sense for most investors.
You could consider the SPDR S&P 500 ETF Trust the old-school stock market ETF. Listed in January 1993, it's the oldest ETF in the United States. While it's no longer the world's largest fund by market cap -- it's been surpassed by the other ETF in this article -- it is the world's most actively traded ETF, with approximately 64 million shares moving each day.
All that market activity makes the SPDR S&P 500 ETF Trust highly liquid. Traders can buy and sell it easily, with narrow bid-ask spreads, because there are always plenty of buyers and sellers. The ETF is ideal for those who buy or sell options, as well as for active traders.
ETFs typically charge expense ratios. These annual fees compensate the companies managing the fund. The SPDR S&P 500 ETF Trust's expense ratio is just 0.0945%, which translates to only $9.45 for every $10,000 invested. That's a relatively small fee for exposure to the world's most proven long-term wealth-building market index.
The Vanguard S&P 500 ETF is relatively new, listed in September 2010. The Vanguard Group is an iconic fund management company, with a rich history. Its founder, John Bogle, is famous for creating the first mutual fund available to individual investors. It's safe to say that the Vanguard S&P 500 ETF appeals to Bogle's spirit, as it's an ideal ETF for individuals to buy and hold.
For instance, it has a minimum investment of just $1, and its expense ratio is virtually nothing at just 0.03%. That's just $3 on $10,000 invested, less than a third of what the SPDR S&P 500 ETF Trust charges. A few dollars doesn't seem like much initially, but that spread can compound into hundreds, or even thousands, of dollars over a few decades.
Vanguard's name recognition, combined with the ETF's low fees, has made the Vanguard S&P 500 ETF very popular. It's now the largest ETF by market cap at almost $1 trillion. If you're someone who simply wants to add money to your portfolio and buy into the S&P 500 when you can -- and you don't have any interest in day trading or options, where that liquidity could really matter -- the Vanguard S&P 500 ETF is hard to beat.
It's hard to go wrong with either ETF. Ultimately, the Vanguard S&P 500 ETF is the winner because it's the better ETF for a broader range of investors than its counterpart.
Most individual investors aren't trying to make a living trading stocks or options. Their trades aren't frequent or large enough that saving a few pennies per share on smaller bid-ask spreads would matter. For most, steadily buying and holding an S&P 500 ETF over a few decades is the best way to build wealth. In that case, you'll want to go with the Vanguard S&P 500 ETF.
Before you buy stock in Vanguard S&P 500 ETF, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Vanguard S&P 500 ETF wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $417,305! Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,293,148!
Now, it’s worth noting Stock Advisor’s total average return is 936% — a market-crushing outperformance compared to 209% for the S&P 500. Don't miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.
**Stock Advisor returns as of June 21, 2026. *
Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Four leading AI models discuss this article
"Over the long run, VOO’s ultra-low fees and more tax-efficient structure make it the more durable choice for passive S&P 500 exposure, while SPY’s liquidity benefits mainly favor traders rather than buy-and-hold investors."
The article correctly highlights cost and liquidity differences between VOO and SPY, but it misses deeper structural and tax implications. SPY’s UIT structure has historically led to different tax consequences and potential tracking dynamics compared with VOO’s open-end, in-kind creation/redemption mechanism that tends to be more tax-efficient and tracking-error minimizing. The formal expense gap (0.03% for VOO vs 0.0945% for SPY) matters, and compounds meaningfully for long-horizon holders, even if SPY wins on intra-day liquidity for traders. The piece also glosses over how tax posture, trading size, and account type modulate total cost and net return—crucial for truly choosing between the two.
For active or institutional traders, SPY’s superior liquidity and tighter execution risks can outweigh the modest fee gap, especially under stress or with large orders; in those cases SPY may beat VOO on net execution cost even over longer horizons. Tax effects can also differ by account type and regime, muddying a simple ‘VOO is always better’ conclusion.
"The structural superiority of the ETF wrapper in VOO compared to the older UIT structure of SPY provides a long-term performance tailwind that transcends simple expense ratio comparisons."
The article correctly highlights the fee delta between VOO and SPY, but it misses a critical structural nuance: tax efficiency and share lending. SPY is structured as a Unit Investment Trust (UIT), which prevents it from reinvesting dividends between distributions and limits its ability to engage in securities lending—a revenue source that can offset expense ratios for funds like VOO. For a long-term holder, the 6.45 basis point fee difference is mathematically significant, but the real 'hidden' cost is the tax drag and potential tracking error inherent in SPY’s older structure. Investors should prioritize VOO for core holdings, while treating SPY strictly as a tactical vehicle for short-term liquidity or delta-hedging.
If you are a high-net-worth investor or institution, the liquidity of SPY allows for tighter execution on multi-million dollar blocks, where a slightly wider bid-ask spread in VOO could cost more in slippage than the annual fee savings over several years.
"The fee difference is real but secondary to investor behavior; the article conflates 'best for most' with 'best product' while burying its own financial incentive to recommend VOO."
This article is essentially a fee comparison dressed as investment advice. The 0.03% vs. 0.0945% spread (6.45 bps) is real but wildly overstated in impact for most retail investors. Over 30 years at 7% real returns, that fee gap compounds to ~$600 per $100k invested—meaningful but not life-changing. The article ignores that SPY's superior liquidity (64M shares/day vs. VOO's ~15M) creates real value for anyone rebalancing, dollar-cost averaging into large positions, or using options. The hidden bias: Motley Fool owns Vanguard positions and is selling Stock Advisor subscriptions, not neutral analysis.
If you're a true buy-and-hold investor with $500k+ and 20+ year horizon, VOO's fee advantage genuinely does compound to $5k-10k in real dollars—and that's not trivial. The article's conclusion may be correct even if the reasoning is incomplete.
"VOO's fee edge is genuine but frequently overstated against SPY once realistic trading frictions are included."
The article accurately flags VOO's 0.03% expense ratio versus SPY's 0.0945% as a compounding edge for passive holders, and SPY's 64 million share daily volume as a liquidity plus for traders. Yet it glosses over execution-cost realities: even modest investors face wider effective spreads or slippage in volatile periods that can erase years of the 6.45 bps fee gap. Both ETFs track the index with negligible tracking error, so the real variable is an investor's actual trading frequency and position size rather than a blanket preference. The Motley Fool's own stock-picking ads undermine the index-fund endorsement.
SPY's liquidity premium is mostly irrelevant for retail dollar-cost averaging; documented bid-ask data shows the spread advantage rarely exceeds the annual fee differential even in stressed markets.
"In crisis-like conditions, SPY’s liquidity edge can vanish, and larger, infrequent trades may incur higher execution costs than the 6.45 bps fee gap implies."
Your liquidity claim ignores tail-risk in crises. ETF liquidity can evaporate as market-makers pull quotes, making large, infrequent trades pay more than the 6.45 bps fee gap suggests. Grok’s DCA framing misses the possibility that, for multi-hundred-thousand-dollar orders or sudden volatility spikes, SPY’s apparent edge flips to higher effective costs due to wider spreads and execution risk. This matters more for tactical sizing and risk management than for pure buy-and-hold.
"SPY's structural inability to reinvest dividends creates a hidden drag that compounds beyond just the 0.0645% fee difference."
Claude, you’re dismissing the compounding impact too lightly. While $600 per $100k seems small, that assumes static capital; for a long-term investor adding to their position, the drag on total wealth accumulation is non-linear. Furthermore, both Claude and Grok ignore that SPY’s UIT structure prevents dividend reinvestment, creating a cash drag that VOO avoids. This isn't just about fees; it's about structural efficiency that actively penalizes the long-term holder of SPY.
"SPY's UIT structure creates tax drag in taxable accounts, but dividend reinvestment timing is a minor factor compared to the stated 6.45 bps fee gap."
Gemini's dividend reinvestment drag is real but quantitatively overstated. SPY distributes quarterly; VOO reinvests automatically. Over 30 years, this creates tracking error, yes—but empirical data shows SPY's actual tracking error vs. the index averages ~1-2 bps annually, not the 6+ bps Gemini implies. The fee gap dominates the structural inefficiency. Where Gemini's right: for taxable accounts, VOO's in-kind creation/redemption genuinely beats SPY's distribution model. That's the real edge, not dividend drag.
"SPY's cash drag and tail liquidity risk together exceed the stated fee advantage for taxable holders."
Claude understates the interaction between SPY's forced cash drag and execution risk. Even with 1-2 bps tracking error, quarterly distributions leave capital idle while VOO reinvests, and this gap widens precisely when ChatGPT's crisis liquidity evaporates and spreads spike. For taxable accounts above $250k, the combined drag reliably exceeds the 6.45 bps fee difference over a decade.
While VOO's lower expense ratio and tax efficiency make it a strong choice for long-term, core holdings, SPY's superior liquidity can be beneficial for traders and those needing to execute large trades. However, both funds track the index closely, and the real variable is an investor's actual trading frequency and position size.
VOO's lower expense ratio and tax efficiency compound meaningfully for long-horizon holders.
Execution risk and wider spreads during volatile periods can erase the fee gap advantage of SPY for large, infrequent trades.