IVV vs. SPY: Which S&P 500 ETF Is the Better Buy for Long-Term Investors?

Both iShares Core S&P 500 ETF (IVV) and State Street SPDR S&P 500 ETF (SPY) strive to replicate the performance of the S&P 500, the benchmark for the U.S. large-cap market. Despite their similar objectives, IVV stands out for its cost efficiency, making it an appealing choice for long-term investors.

IVV's expense ratio of 0.03% is significantly lower than SPY's 0.09%, resulting in a notable 0.06 percentage point difference. This expense gap may seem minor, but over time, it can compound and contribute to a higher distribution yield. Currently, IVY distributes $8.40 per share annually, resulting in a 1.1% yield, while SPY distributes $7.58 per share, translating to a 1% yield.

Despite charging less, IVV maintains a portfolio similar to SPY. Both funds have a strong tilt towards technology, accounting for 51% of their respective holdings. Major holdings in IVV include Nvidia (7.86%), Apple (7.47%), and Microsoft (5.99%), while SPY mirrors this with Nvidia (7.86%), Apple (7.46%), and Microsoft (5.99%). The launch years for these funds are 2000 for IVV and 1993 for SPY, both offering nearly identical portfolios and similar long-term performance and dividend income.

When deciding between these two funds, investors should consider factors such as returns, dividends, and costs. However, in this comparison, the decisive factor is the fees charged by each ETF. With a slightly lower expense ratio, IVV emerges as the preferred option for investors seeking straightforward, low-cost exposure to America's largest companies. While SPY's liquidity remains advantageous for active traders, long-term investors have little reason to pay three times as much for essentially the same exposure.