VOO, VTI, SPY, or IVV? How These 4 Index Funds Differ

The Vanguard S&P 500 ETF (VOO), the iShares Core S&P 500 ETF (IVV), the State Street SPDR S&P 500 ETF (SPY), and the Vanguard Total Stock Market ETF (VTI) are the four largest ETFs globally, managing about $3.5 trillion in investor money. Despite having similar names, they have differences that could make one more suitable than the others, depending on the investor's situation. These variations include fees, portfolio composition, and liquidity.

The Vanguard Total Stock Market ETF (VTI) is distinct from the others as it covers the entire investable U.S. stock market, including large-, mid-, and small-caps across all industry sectors. It doesn't focus solely on large-caps like the S&P 500 does. The fund comprises around 3,500 stocks, with approximately 88% overlap with the S&P 500.

This means that only about 12% of the portfolio consists of mid- or small-cap stocks. Therefore, while there might seem to be a significant difference in portfolio composition due to owning 3,000 additional stocks, the reality is that the two funds have a very similar risk and return profile. The inclusion of smaller stocks in VTI could be appealing, even though it has a relatively minor impact on overall performance.

When comparing the costs of these ETFs, VOO and IVV have identical expense ratios of 0.03%, making them nearly cost identical despite having the same assets under management (AUM) and trading volumes. The State Street SPDR S&P 500 ETF (SPY), on the other hand, has a slightly higher expense ratio of 0.0945%. This fund is the original ETF but isn't competing with Vanguard and BlackRock on fees, as it is heavily used by larger institutions for trading purposes.

For individual retail investors, the Vanguard and iShares ETFs seem to be the better choices due to their lower costs. SPY still has its place, but going with the cheapest option generally makes more sense. In the end, all these funds are strong long-term holdings for almost any portfolio. Although the differences between them might seem small, they can make a difference over time.