The S&P 500 is an index you cannot buy directly. SPY, VOO, and IVV are the funds that track it. For a long-term investor, SPY is the most liquid but the most expensive, at a 0.0945% expense ratio versus 0.03% for VOO and IVV. Its older trust structure also causes a small dividend drag. For buy-and-hold, VOO or IVV owns the same 500 companies for less.
Key takeaways
- The S&P 500 is a benchmark index maintained by S&P Dow Jones Indices. You gain exposure through a fund such as SPY, VOO, or IVV, not by purchasing the index itself.
- SPY, the State Street SPDR S&P 500 ETF Trust, is the oldest and most heavily traded S&P 500 ETF, which makes it the tool of choice for active traders and options strategies.
- SPY charges 0.0945% a year. Vanguard's VOO and BlackRock's IVV both charge 0.03%, roughly a third of the cost.
- SPY is a unit investment trust, so it must hold dividends in cash until they are paid out. VOO and IVV are open-end funds that can reinvest dividends immediately, which has historically given them a slight edge over long holding periods.
- For a hold-forever position, VOO or IVV is the cheaper wrapper. SPY earns its keep when liquidity and tight options markets matter more than a few basis points of fee.
The S&P 500 is the target, not the investment
The S&P 500 is a float-adjusted, market-capitalization-weighted index of 500 large U.S. companies, selected by a committee at S&P Dow Jones Indices to represent roughly 80% of available U.S. equity market value. It is the number quoted when the financial press refers to "the market," and it has returned close to 10% annualized including dividends since 1957.
You cannot invest in the index directly. It is a calculation, not a security. To own it, you buy a fund that replicates it. That is where SPY, VOO, and IVV come in, and the differences between them are small but real over a FatFire-length horizon.
SPY: the original, and still the most liquid
State Street launched the SPDR S&P 500 ETF Trust (SPY) on January 22, 1993, making it the first exchange-traded fund in the United States. It holds roughly $809 billion in assets and trades tens of millions of shares a day, the deepest liquidity of any S&P 500 fund (State Street Global Advisors, August 2026).
That liquidity is why institutions, hedgers, and options traders default to SPY. Tight bid-ask spreads and an enormous options market make it cheap to move in and out of large positions quickly.
Two structural quirks matter for long-term holders:
- Expense ratio of 0.0945%. Low by any historical standard, but higher than its two main rivals.
- Unit investment trust (UIT) structure. SPY is legally a UIT, not an open-end fund. A UIT cannot reinvest incoming dividends into the portfolio and cannot lend securities. It must hold dividends in cash until the quarterly distribution, which creates a small "cash drag" during rising markets. SPY currently distributes a yield near 0.98% (State Street Global Advisors, August 2026).
VOO and IVV: cheaper wrappers, same 500 companies
Vanguard and BlackRock arrived later and competed on price and structure.
The Vanguard S&P 500 ETF (VOO) launched September 7, 2010, charges 0.03%, and has grown past $1 trillion in assets. The iShares Core S&P 500 ETF (IVV) from BlackRock launched May 15, 2000, also charges 0.03%, and holds roughly $869 billion (Alpha Vantage ETF profile data, August 2026; both ratios confirmed against issuer disclosures).
Both are open-end funds. That structure lets them reinvest dividends and lend securities, recapturing small amounts of return that SPY's trust structure leaves on the table. The practical result: over long holding periods, VOO and IVV have tended to track the index a hair more tightly than SPY, on top of their lower fee.
SPY vs VOO vs IVV at a glance
| SPY | VOO | IVV | |
|---|---|---|---|
| Issuer | State Street | Vanguard | BlackRock (iShares) |
| Expense ratio | 0.0945% | 0.03% | 0.03% |
| Structure | Unit investment trust | Open-end fund | Open-end fund |
| Inception | Jan 22, 1993 | Sep 7, 2010 | May 15, 2000 |
| Assets | ~$809 billion | Over $1 trillion | ~$869 billion |
| Best for | Traders, options, maximum liquidity | Buy-and-hold, lowest cost | Buy-and-hold, lowest cost |
What the fee gap actually costs
The difference between 0.0945% and 0.03% is about 6.5 basis points a year. On a $100,000 position, that is $94.50 in annual fees for SPY versus $30 for VOO or IVV, a $64.50 gap. On a $1 million position it is $945 versus $300.
The dollar figure is modest in any single year, which is why traders happily pay it for SPY's liquidity. Compounded across the decades a FatFire portfolio actually holds, the lower-cost wrapper wins on the margin, and the UIT dividend drag pushes the same direction. All three funds hold the identical basket of companies, so the fee and structure are most of what separates their long-run results.
Which one to hold
Match the fund to the job:
- Buy-and-hold core position: VOO or IVV. Both cost 0.03%, both use the more efficient open-end structure, and the choice between them usually comes down to which brokerage or fund family you already use. Vanguard investors lean VOO; those already in the iShares or BlackRock ecosystem lean IVV.
- Active trading, hedging, or options: SPY. Its liquidity and options depth are unmatched, and the higher fee barely registers on positions you do not hold for years.
- Tax-loss harvesting: holding two of these lets you swap between near-identical S&P 500 exposures without a wash sale, a common move for larger investing accounts.
The index is the same in every case. What you are really choosing is the wrapper, and for a long-term investor the cheaper, more efficient wrapper is the default.
Sources
- State Street Global Advisors, SPDR S&P 500 ETF Trust (SPY) fund page, accessed August 25, 2026 (expense ratio, net assets, UIT structure, distribution yield, inception date).
- Vanguard S&P 500 ETF (VOO) fund profile and Alpha Vantage ETF profile data, August 2026 (0.03% expense ratio, assets, inception date).
- iShares Core S&P 500 ETF (IVV) fund profile and Alpha Vantage ETF profile data, August 2026 (0.03% expense ratio, assets, inception date).
- S&P Dow Jones Indices, S&P 500 index methodology and fact sheet (index construction, coverage, long-run return).
Frequently asked questions
What is the difference between SPY and the S&P 500?
The S&P 500 is a benchmark index maintained by S&P Dow Jones Indices, not something you can buy directly, because it is a calculation rather than a security. SPY is the State Street SPDR ETF that tracks it, launched January 22, 1993 as the first US exchange-traded fund. To gain exposure you buy a fund like SPY, VOO, or IVV.
Why is SPY more expensive than VOO and IVV?
SPY charges 0.0945% a year, while Vanguard's VOO and BlackRock's IVV both charge 0.03%, roughly a third of the cost. All three hold the identical basket of 500 companies, so the fee is most of what separates their long-run results. SPY earns its higher fee through unmatched liquidity and options depth, which matter for traders but not long-term holders.
How does SPY's trust structure affect dividends?
SPY is legally a unit investment trust, so it cannot reinvest incoming dividends and must hold them in cash until the quarterly distribution. That creates a small cash drag during rising markets. VOO and IVV are open-end funds that reinvest dividends immediately and can lend securities, which has historically given them a slight edge over long holding periods.
Which S&P 500 ETF should a long-term investor hold?
For a buy-and-hold core position, VOO or IVV is the default. Both cost 0.03% and use the more efficient open-end structure, so the choice between them usually comes down to which brokerage or fund family you already use. SPY makes sense for active trading, hedging, or options, where its liquidity outweighs the higher fee on positions you do not hold for years.