Compounding is not just for Investments for also for your expenses.

Read to know more on why we chose VOO instead of SPY in our core portfolio.

 

First-time or new investors debate over choosing S&P 500 ETF, either SPY or VOO.

Congratulations on your decision to invest in the S&P 500 index, and it is the wisest thing to do. If you haven’t read my ultimate soccer team portfolio, here is the complete list you can read anytime — Access here.

Many have liked my Soccer team portfolio idea, and it gives me a lot of motivation to continue writing portfolio updates. More importantly, my readers and I grow wealthy together. The best part about the soccer team portfolio is that:

1. It is an ultra-lazy portfolio
2. Aimed to beat inflation
3. Long-term wealth creation
4. Ultra-passive,
5. Low-churn,
6. Well-diversified,
7. All-weather portfolio.

The chances of anyone losing your hard-earned money is almost nil, provided you stay invested forever with proper asset allocation. 

If you have read about my selection of the first player on my soccer team, you must have noticed that I have picked VOO instead of SPY.

Note that:

VOO — is Vanguard S&P 500 ETF

SPY — is SPDR S&P 500 ETF

One may choose SPY or VOO, nothing wrong with either of the ETFs. Let’s dig a bit into reasoning my choice of VOO instead of SPY. Investing in VOO, you may get astonished by the difference in returns. VOO offers about $20,000 more for $100,000 invested for over 30 years.

SPY vs. VOO — The Ultimate Verdict:

Many investors think both SPY & VOO are the same. While it is true that they both track the S&P 500 index, some minor differences lead to marginal better returns.

Source: etf.com

Expense Ratio: VOO has an expense ratio of 0.03%, whereas SPY is about 0.0945%. While many may say the expense ratio is too small to talk about → for a long-term passive investor like me, it makes a difference.

Let’s assume we invest $100K for over 30 years and take the average return of about 9% per year; the expenses compound along with the returns. In this case, If $100K were invested in SPY and VOO, it would have become $1.18 million and $1.20 million, respectively, over 30 years (dividends not included). The difference in expenses would be around $8.5K. Thus, as a long-term passive investor, my choice is VOO which has a lower expense ratio for the same holdings. Here is the calculation for your easy reference.

Source: Author’s calculation based on some assumptions. Calculations are not CAGR.

Assets Under Management (AUM): SPY, being the oldest, has almost twice the AUM compared with VOO.

Volume: SPY $volume is exponentially higher than VOO. Thus, if you are a trader or hedging existing positions or an options trader, then SPY may be of better use.

Performance Comparison: Both VOO and SPY have offered similar returns; however, upon a closer look, VOO offers slightly better returns which could be due to the lower expense ratio.

Source: ETF.COM

Holdings: SPY and VOO hold almost a similar number of stocks, however, with a slight change in weight over individual stocks. The top 10 holdings are identical except for a subtle shift in weight %.

Source: ETF.COM

Conclusion: If you are a trader or a short-term investor, SPY may meet your needs as the trading volume / bid-ask spread is good for the short term. If you choose to invest like us for the long term and stay passive, we decide to go with VOO.