The Best SP500 Tracking ETF: IVV, VOO, or SPY?

When it comes to choosing the best SP500 tracking ETF, opinions can vary widely. There's no one-size-fits-all answer, as different investors have different needs and priorities. However, we can provide a detailed analysis of the main options - IVV, VOO, and SPY - to help you make an informed decision.

Understanding SP500 ETFs

SP500 ETFs are a convenient way to gain exposure to the performance of the SP 500 index. The index itself comprises the 500 largest publicly traded companies in the United States and represents a broad cross-section of the U.S. stock market.

Comparing IVV, VOO, and SPY

The three main SP500 tracking ETFs are IVV, VOO, and SPY. Each has its own unique characteristics that might make it more or less suitable for your investment strategy.

IVV: The SPDR SP 500 ETF

Expense Ratio: IVV charges a very low expense ratio of 0.04%, or 4 basis points (bps). This low fee reflects the exchange-traded fund (ETF) structure, which allows it to benefit from security lending to generate extra income. This income can offset part of the overall fee, reducing the effective expense ratio to as low as 2 bps (0.02%).

VOO: The Vanguard SP 500 ETF

Expense Ratio: Like IVV, VOO also has a very low expense ratio of 0.04%. However, both VOO and IVV have a competitive advantage over SPY due to their ability to generate additional income from security lending.

SPY: The SPDR SP 500 ETF

Expense Ratio: SPY has a higher expense ratio of 0.09% (9 bps). This higher fee is not due to poor management or performance but rather to the nature of SPY as a Unit Investment Trust (UIT) rather than an ETF. Being a UIT, SPY cannot lend securities, which is a key source of income for other SP500 ETFs.

Making the Best Choice

So, which ETF is the best choice for you? Here are some factors to consider:

Cost: IVV and VOO are the clear winners in terms of cost, with a lower annual fee. If cost is your top priority, either IVV or VOO would be a strong choice. Liquidity and Options: If you need to trade frequently or regularly use derivative products, SPY offers superior liquidity and options market depth. Despite its higher fee, SPY still attracts a lot of assets due to these advantages. Structure: SPY is a UIT, which means it is not able to lend securities. This could lead to a higher expense ratio compared to ETFs like IVV and VOO.

Ultimately, the "best" ETF depends on your specific needs and goals. If you prioritize low costs and the ability to generate extra income through security lending, IVV or VOO may be the better choice. If you need strong liquidity, especially for options trading, SPY might be worth the higher fee.

Conclusion

Choosing the best SP500 tracking ETF involves considering several factors, including expense ratio, overall cost, liquidity, and the specific structure of the fund. IVV, VOO, and SPY all offer unique advantages, and the right choice for you will depend on your individual circumstances.