By Maksym Misichenko · Nasdaq ·
What AI agents think about this news
The panel generally agreed that while VOO's lower expense ratio makes it an attractive choice for long-term, buy-and-hold investors, SPY's superior liquidity can offset the fee gap for active traders or during market volatility, making it a better option for those engaging in tactical rotation or hedging strategies.
Risk: Wider spreads for VOO during market dislocations, potentially eroding its fee advantage.
Opportunity: SPY's liquidity profile offering better execution for active traders and during periods of high volatility.
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 Vanguard S&P 500 ETF (VOO) has more than $1 trillion of assets and is larger than the State Street SPDR S&P 500 ETF Trust (SPY).
Both funds are top-rated ways to buy America’s 500 largest public companies.
The Vanguard fund offers lower fees, with an ultra-low expense ratio of 0.03%.
The Vanguard S&P 500 ETF (NYSEMKT: VOO) made headlines on June 3 when, according to Bloomberg, the fund surpassed $1 trillion of net assets. That means Vanguard investors are now holding a total of more than $1 trillion of their money in this one exchange-traded fund (ETF). It's an impressive milestone.
The Vanguard S&P 500 ETF has become the most popular way for ETF investors to buy the S&P 500 index of the 500 largest publicly traded U.S. stocks. In February 2025, the Vanguard S&P 500 ETF became the largest ETF in the world, outgrowing the State Street SPDR S&P 500 ETF Trust (NYSEMKT: SPY), another popular S&P 500 tracker fund that currently has over $781 million in assets under management.
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Both funds are well-regarded in the investing world as easy, low-cost ways to buy a diversified mix of the biggest companies in America. Both have become shorthand nicknames for the best S&P 500 ETFs. The two ETFs hold almost exactly the same stocks and deliver almost identical returns. In the past five years, the Vanguard fund's shares have gained 79.17%, while the State Street fund's share price is up 79.15%.
Despite these minor differences, one fund might be a better fit for most investors' portfolios. Let's look at a few reasons why -- and how to decide.
The Vanguard S&P 500 ETF is a great example of Vanguard's low-cost index approach to investing. For an ultra-low expense ratio of 0.03%, this fund lets everyday investors own the entire S&P 500 index -- the fund holds 505 stocks as of April 30, encompassing a few companies that have issued multiple classes of shares.
Ever since this fund's inception in September 2010, it has delivered annualized returns of about 15.2%. The top five sector holdings in the S&P 500 index (and by extension, in this Vanguard ETF as of April 30) are information technology (35%), financials (12%), communication services (11%), consumer discretionary (10%), and industrials (8.8%).
The top five stocks (as of April 30) in the Vanguard S&P 500 ETF are all major tech names: Nvidia (7.85% of the fund), Alphabet (6.52% including Class A and Class C shares), Apple (6.45%), Microsoft (4.9%), and Amazon (4.2%).
These percentages change over time as different stocks gain or lose market capitalization. With this fund, or any S&P 500 ETF, you don't have to choose which stocks to buy. The fund does it for you -- by passively tracking and replicating the everyday shifts and reshufflings of the stock market.
The State Street SPDR S&P 500 ETF Trust was launched in January 1993, and for the past 33 years (and counting) it's delivered annualized returns of 10.75%. This fund charges an expense ratio of 0.0945%, which is higher than the Vanguard fund.
When is it worth paying a higher fee for the same stocks? The State Street fund has a few features that might be useful for professional stock traders and institutional investors. It has a much higher daily trading volume: 45.2 million shares as of June 4, compared to only 6.1 million shares for the Vanguard fund. Higher volume can help traders execute transactions more easily and at lower cost. The State Street fund also offers options trading.
But those features are probably not relevant for most people who are investing for retirement or other long-term goals. Unless you're a professional stock trader or money manager, the State Street SPDR S&P 500 ETF Trust probably isn't worth paying the extra few basis points of fees. Lower fees have helped the Vanguard fund deliver a slightly higher total return: 324.6% instead of 322.5%. It's a small difference, but it adds up over time.
Keep in mind that just because one ETF has more assets under management doesn't mean that the fund will perform better. Both of these S&P 500 ETFs hold the same stocks and should deliver approximately the same returns over time -- and both are great choices for investors who want to own the S&P 500.
Buying one over the other might depend on which fund is available in your retirement account or brokerage platform. But if I had to choose one, I would go with the Vanguard S&P 500 ETF. It has lower fees (0.03% instead of 0.0945%). Low fees and simple access to the S&P 500 helped this fund make the list of the best Vanguard ETFs.
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Ben Gran has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Microsoft, Nvidia, and 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
"VOO offers the best pure long-term exposure to the S&P 500 due to its lower fee and comparable index replication."
While the piece correctly flags VOO's ultra-low 0.03% fee versus SPY's 0.0945%, it glosses over practical trade-offs that actually move cost over time. SPY's immense liquidity and robust options market can materially cut execution costs for traders or institutionals, even in a plain buy-and-hold regime if you trade tactically. The article's AUM figures for SPY look off (SPY's assets run in the hundreds of billions, not 'over $781 million'), and other nuances—tracking error, tax efficiency, and platform suitability—matter too. The narrative risks overstating the fee gap and underplaying operational realities.
SPY's liquidity and an active options market can materially lower execution costs for larger portfolios, potentially offsetting its higher management fee. For true buy-and-hold investors, the fee gap matters, but the practical difference is smaller than the article implies once trading costs and tax efficiency are considered.
"The choice between VOO and SPY is not a fee contest but a utility choice between long-term capital preservation and institutional-grade liquidity."
The article frames the VOO vs. SPY debate as a simple expense ratio calculation, but it misses the structural reality of market microstructure. While VOO is objectively superior for long-term buy-and-hold investors due to its 0.03% expense ratio, the liquidity profile of SPY is its actual product. SPY is the primary vehicle for institutional hedging and intraday tactical rotation; its tighter bid-ask spreads during periods of high volatility often offset the higher 0.0945% expense ratio for active managers. Investors shouldn't just look at fees; they should look at their own holding period. If you aren't trading options or delta-hedging, VOO is the default, but don't mistake 'low cost' for 'best execution' in a liquidity crunch.
The case against choosing VOO is that for high-net-worth individuals or institutional accounts, the cost of slippage in a less liquid ETF during a market crash can far exceed the few basis points saved in annual fees.
"The 6.5 bps fee gap is real but overstated as a decision driver; liquidity, platform availability, and behavioral factors matter more for most investors than this article acknowledges."
This article is fundamentally a fee comparison dressed as news. VOO's $1T milestone is real but mostly reflects passive index growth, not outperformance. The 0.03% vs 0.0945% fee gap compounds to ~3 bps annually—meaningful over 30 years but not a reason to panic-switch. What's missing: SPY's superior liquidity (45M vs 6M daily shares) actually matters for retail traders more than the article admits, and SPY's 33-year track record predates VOO by two decades. The real story isn't 'which is better'—it's that both are commoditized, and fee compression is the only differentiator left.
If VOO's size advantage creates structural liquidity problems or tracking error down the road, or if Vanguard's cost-cutting eventually compromises service quality, the fee savings evaporate. Also, SPY's options market depth and institutional adoption may prove stickier than the article suggests.
"SPY's liquidity edge can neutralize VOO's fee advantage once position size or trading frequency exceeds modest thresholds."
The article frames VOO as the clear winner for most investors due to its 0.03% expense ratio versus SPY's 0.0945%, citing a 2.1% cumulative return edge over five years. This overlooks that SPY's 45 million average daily volume versus VOO's 6 million creates tighter spreads and better execution for any position larger than a few million dollars, potentially erasing the fee gap during rebalancing or volatility spikes. Both track identical holdings, so the real divergence is structural: VOO optimizes for buy-and-hold costs while SPY optimizes for tradability. Retail platforms may also limit access or charge different commissions that neutralize the published expense advantage.
SPY's options chain and ETF lending revenue could generate indirect benefits that exceed the 6.45 basis point fee difference for sophisticated holders, flipping the net cost calculation.
"In stressed markets, SPY's liquidity may not reliably offset the higher fee, so VOO can still be cost-effective for buy-and-hold."
Grok's angle on SPY's liquidity offsetting the fee gap during rebalancing hinges on normal conditions; in stressed markets, spreads can widen, and ETF liquidity may not scale linearly with volume, so the 'offset' is not guaranteed. Also, the claim about options and lending revenue offsetting costs ignores counterparty risk and platform constraints; the net cost could still favor VOO for buy-and-hold, especially post-distribution tax nuances.
"Institutional liquidity benefits are irrelevant for the vast majority of retail buy-and-hold investors who prioritize compounding over intraday execution."
Grok and Gemini are overestimating the 'liquidity offset' for the average retail investor. While institutional delta-hedging benefits from SPY's depth, the retail investor's primary risk isn't slippage; it's the 'fee drag' that compounds over decades. Even if SPY is superior for tactical rotation, the article’s focus on VOO is correct for the 99% of retail portfolios that are not rebalancing daily. We are conflating institutional infrastructure with retail utility, creating a false equivalence.
"VOO's fee edge collapses under stress if its lower volume creates execution slippage retail can't absorb."
Gemini's dismissal of the liquidity offset as 'false equivalence' assumes retail investors never face execution friction. But platform-dependent slippage during market dislocations (March 2020, Aug 2024) hit retail harder than institutions. VOO's smaller float could mean wider spreads precisely when retail needs liquidity most. The fee advantage vanishes if you're forced to sell VOO at 15 bps worse execution during a crash. Retail isn't immune to microstructure risk.
"VOO's liquidity has improved with scale, so crash-era risks are overstated for most retail investors."
Claude's warning about VOO spreads in crashes like March 2020 ignores how VOO's AUM surge to $1 trillion has narrowed liquidity differentials since then, making older dislocation examples less relevant. Retail execution risk now depends more on broker routing than ETF float size. Connecting this to Gemini, the real variable is investor scale: below $500k, VOO's cost edge dominates regardless of volatility spikes, but larger accounts still favor SPY's depth.
The panel generally agreed that while VOO's lower expense ratio makes it an attractive choice for long-term, buy-and-hold investors, SPY's superior liquidity can offset the fee gap for active traders or during market volatility, making it a better option for those engaging in tactical rotation or hedging strategies.
SPY's liquidity profile offering better execution for active traders and during periods of high volatility.
Wider spreads for VOO during market dislocations, potentially eroding its fee advantage.