VOO vs. SPY: Which ETF Is Better?

If you are interested in ETFs and want to see a clash of two absolute titans, look no further than VOO vs. SPY . VOO (Vanguard S&P 500 ETF) and SPY (SPDR S&P 500 ETF Trust). Both track the same index, the S&P 500, but there are some legitimate and important differences under the hood that may make one a better first your personal situation. Below, we go through VOO, SPY, and what you need to know about how these ETFS stack up against each other, MarketPlays-style: simple, strategic, and community-driven.

How do VOO and SPY ETFs work?

An Exchange-Traded Fund (ETF) is a bundle of stocks (or other assets) you can buy and sell on the stock market, just like a regular stock. It offers built-in diversification; buy one share, and you get exposure to hundreds of companies. ETFs are ideal for new and experienced investors alike who want to simplify and scale, and are popular for individuals who want to passively track the stock market without an active money manager. The S&P 500 Index, tracked by both VOO and SPY, includes 500 of the largest publicly traded companies in the U.S., spanning sectors like tech, healthcare, energy, and finance. It’s a go-to benchmark for anyone trying to capture the pulse of the U.S. economy.

Quick comparison: VOO vs. SPY

Before diving deeper, here’s a side-by-side snapshot of the most important differences between VOO and SPY. This quick comparison helps clarify how they stack up in terms of cost, structure, and strategy, so you can decide which one better fits your investing style:

Expense ratios: A small number with big implications

One of the most overlooked factors in choosing an ETF is the expense ratio, the percentage of your investment that goes toward covering the fund’s operational costs each year. It’s automatically deducted from your returns, and while it might seem negligible at first glance, it adds up fast.

Let’s break it down with a simple example:

• You invest $10,000 in each ETF.
• VOO’s fee is 0.03%, so you pay $3 per year.
• SPY’s fee is 0.09%, so you pay $9 per year.

Not a huge difference in Year 1, right, but remember, Year 1 is only part of the puzzle. Investing isn’t just about Year 1, it’s about Year 10, Year 20, Year 30. Over the decades, fees compound just like your gains. And that’s where the gap starts to widen.

That’s a $2,400 difference just from fees, on one $10,000 investment. If you’re building a six-figure or seven-figure portfolio over time, the fee gap scales with you.

Why this matters for MarketPlays investors

If you’re part of an investment hub focused on long-term growth, whether it’s retirement, generational wealth, or passive income, expense ratios should be on your radar. Every fraction of a percent matters, especially when multiplied across years and multiple contributors pooling into the same portfolio strategy. In short, VOO keeps more of your money working for you, especially if you plan to buy and hold for the long haul. SPY still offers value for tactical moves, but when it comes to maximizing compound returns over decades, lower fees give VOO the edge.

Liquidity and trading activity

Liquidity matters because it affects how quickly and cheaply you can buy or sell an ETF. In this arena, SPY is the undisputed heavyweight. As one of the most actively traded ETFs on this blue spinning ball we call Earth, SPY offers:

• Tight bid-ask spreads: You won’t lose as much to slippage.
• High volume: Millions of shares change hands daily, so large trades get filled fast.
• Flexibility for short-term traders: This is why SPY is a staple for institutions and day traders alike.

If you’re an active investor using options, setting tight limit orders, or moving in and out of the market frequently, SPY gives you the control and responsiveness you need. VOO, on the other hand, has lower average daily volume, but it's far from illiquid. For retail investors holding positions for years or decades, VOO provides more than enough liquidity. The spreads are still competitive, and trades typically execute without delay, especially for smaller accounts. In short, SPY is optimized for speed. VOO is optimized for efficiency. Both work and are good at what they do. However, the most important question is. "Do they work for you?"

Tax structure and reinvestment

The structure of an ETF determines how it handles income and capital gains, and that can affect your taxes. VOO is structured as an open-ended ETF, which gives it flexibility to reinvest dividends, manage inflows and outflows efficiently, and avoid triggering capital gains events. Vanguard’s unique share class structure also helps minimize distributions, which means fewer tax surprises for you at the end of the year. SPY is a Unit Investment Trust (UIT), a legacy structure that restricts what the fund can do with its income. For example:

• It can’t reinvest dividends, which may create cash drag.
• It may need to distribute capital gains more often, especially in volatile markets.
• It has fewer tools to manage inflows and outflows tax-efficiently.

This makes VOO more tax-friendly, particularly in taxable brokerage accounts where efficiency really counts. If you’re investing through a retirement vehicle (like a Roth IRA or 401(k)), this difference may not matter. But in a regular taxable account, VOO helps you keep more of your after-tax gains.

VOO vs. SPY: Annualized returns

When two ETFs track the same index, performance is usually neck and neck, and that’s exactly the case here.

• Over the past 10 years, VOO has returned approximately 12.5% annualized.
• SPY has returned about 12.4%, a marginal difference.

Why the tiny edge for VOO? It mostly comes down to lower fees and slightly better tax treatment, which can snowball into slightly higher net returns over time. Don’t choose based solely on past performance. Instead, look at how each fund fits into your tax situation, trading style, and long-term strategy.

VOO vs. SPY: Dividend Yield

Luckily, if you are looking for dividends, they both pay a similar dividend as well. Both VOO and SPY pay quarterly dividends derived from the underlying S&P 500 companies. But VOO typically offers a slightly higher yield, around 1.30% vs. SPY’s 1.23%. That 0.07% difference may seem small, but it adds up in portfolios geared toward passive income, retirement withdrawals, or dividend reinvestment plans (DRIPs). If you’re building a strategy that includes cash flow from dividends, every basis point counts. It’s also worth noting that VOO’s structure allows more flexibility with how those dividends are managed, which again benefits long-term investors focused on tax efficiency and compounding.

Who is each ETF best for?

Choosing between VOO and SPY isn’t about which one is “better”; it’s about which one better fits your style. Whether you're in it for the long haul or making fast moves in the market, each ETF has strengths tailored to different types of investors. Here's how to decide which one works best for you:

VOO fits right into a "set it and forget it" approach. If you’re maxing out a Roth IRA or building a passive-income strategy in a brokerage account, VOO lets your money work quietly and efficiently. It’s the ETF equivalent of a reliable electric car: not flashy, but powerful, efficient, and built to go the distance.

SPY fits best in trading-centric portfolios, particularly for those who use short-term strategies, hedging, or leverage. It's popular in margin accounts and among options traders who value speed and volume over cost. Think of SPY as a race-ready performance car: high-powered, ultra-responsive, and built for fast moves, not Sunday drives.

Community insights: What our investors are saying

When it comes to the VOO vs. SPY debate, the MarketPlays community doesn’t just weigh in; they crowdsource real investing wisdom. In our investment hubs and sector-focused circles, VOO is often the go-to for cost-conscious, long-term investors. Its ultra-low fees and tax efficiency align perfectly with strategies built on passive growth and compounding over decades. Meanwhile, SPY dominates the conversation among tactical traders and options enthusiasts. Its high liquidity and ultra-tight spreads make it a preferred choice for anyone who prioritizes trade execution and market responsiveness.

Here’s what we’ve seen across the platform:

• 60% of long-term retail investors preferred VOO in community polls, citing its low drag on returns and alignment with passive investing strategies.
• 70% of active swing traders said they lean toward SPY, especially for fast trades, options strategies, or margin flexibility.
• In mixed portfolios, many investors use both to serve different roles, VOO as the “core,” SPY as the “move.”

At MarketPlays, we don’t just debate, we build together. These insights reflect real strategies from real people aiming to grow their portfolios smarter and faster.

Real-world scenario: What the numbers say

Let’s bring the theory to life with a side-by-side scenario. You invest $50,000 into each fund and hold for 25 years, assuming consistent market performance and reinvested dividends.

At first glance, both funds seem neck and neck. But over time, VOO’s lower fees and greater tax efficiency compound, resulting in an estimated $15,000 advantage in net value, even with nearly identical market performance.

Should you ever own both?

Absolutely. Investing isn’t about choosing a single winner, it’s about building the right combination of tools for your strategy. Here’s how many MarketPlays members approach it:

• Use SPY for tactical trades, market hedging, or options overlays.
• Use VOO in retirement accounts, HSAs, or long-term brokerage holdings.

This “core-and-satellite” approach lets you blend stability with flexibility. VOO becomes your anchor, cheap, consistent, and long-term focused, while SPY acts as your agile trading vehicle when you need to move fast. Diversification isn’t just about sectors or asset classes. It’s about strategy layering, and owning both ETFs can help you achieve that.

Smart plays, smarter portfolios

When comparing VOO and SPY, you’re not just choosing between tickers. You’re choosing between two styles of investing:

• One favors long-term discipline and optimization (VOO).
• The other favors flexibility, volume, and tactical agility (SPY).

Here’s the cheat sheet:

🟩 VOO = Low fees, tax smart, long-term compounder 🟥 SPY = Ultra liquid, option-ready, trader-friendly If you’re just getting started or looking to grow your portfolio, understanding these small structural differences can make your decisions sharper, and you are able to grow your experience.    

FAQ

Can I switch from SPY to VOO without triggering taxes?

Yes, but only if you're doing it within a tax-advantaged account like a Roth IRA or 401(k). In a regular taxable brokerage account, selling SPY to buy VOO would trigger a capital gains tax if your SPY position has appreciated. To avoid this, many investors hold both ETFs and slowly rebalance through new contributions or dividend reinvestment instead of selling outright.

Does either ETF offer fractional shares?

Yes, both VOO and SPY can be purchased as fractional shares, depending on your brokerage. This makes it easy to start investing with any dollar amount, even if you can't afford a full share. It’s especially helpful for beginner investors who want to dollar-cost average into an S&P 500 fund over time.

Are VOO and SPY good for dividend reinvestment?

VOO is slightly better suited for dividend reinvestment due to its open-ended structure, which is more tax-efficient and optimized for compounding. However, both ETFs can be enrolled in a DRIP (dividend reinvestment plan) through your brokerage. If your goal is to let dividends fuel long-term growth, either option can work, but VOO has a slight edge.