Billionaire investors typically prefer simpler ways to make money, with a typical example being their use of Exchange-Traded Funds (ETFs) like Vanguard S&P 500 ETF.
Warren Buffett and Ken Griffin are two of the world's most successful investors. Both have opted for the simple investment route of Vanguard S&P 500 ETF (VOO).
Berkshire Hathaway Chairman Buffett even recommended this ETF in his will as part of his family's legacy. Similarly, Griffin's hedge fund Citadel not only invests in the same ETF but also holds significant options.
Why is the S&P 500 ETF so favored?
The S&P 500 ETF tracks the S&P 500 Index, considered a benchmark for the U.S. economy. It holds the 500 largest U.S. stocks across all sectors, including technology, energy, finance, and healthcare.
When you invest in the S&P 500 ETF, you automatically own top stocks like Apple (AAPL), Tesla (TSLA), Disney (DIS), and Warren Buffett's Berkshire Hathaway (BRK.A). Historically, the index has averaged around a 10% annual return.
What's the best S&P 500 ETF?
Given the popularity of the S&P 500 Index, there are many ETFs tracking it. Here's a comparison of four of the most popular ones: VOO, SPY, IVV, and SPLG.
Vanguard S&P 500 ETF (VOO)
VOO is highly favored by investors. It's offered by Vanguard Group, founded by many as the "father of index investing," Jack Bogle.
Vanguard is currently the largest provider of index funds globally, known for its extremely low fund fees. Over the years, VOO has been one of the cheapest among large S&P 500 ETFs, with an expense ratio of only 0.03%. In other words, the annual fee for investing $10,000 in VOO is just $3!
SPDR S&P 500 ETF Trust (SPY)
SPY is the oldest and most famous S&P 500 ETF. Launched in 1993, it's provided by State Street Global Advisors. Compared to VOO and IVV, it trades much more frequently. SPY trades an average of 85 million shares per day, while VOO and IVV each trade less than 5 million shares.
While this enhances SPY's liquidity, the trading volume for all four ETFs is extensive, making liquidity differences less important for the average investor. The main difference among SPY, VOO, and IVV lies in costs. SPY has an expense ratio of 0.09%, while VOO and IVV charge only 0.03%.
iShares Core S&P 500 ETF (IVV)
IVV is part of the iShares family, a subsidiary of BlackRock. Like Vanguard and State Street Global Advisors, BlackRock is also one of the world's largest asset management companies.
Since its inception in 2000, IVV has grown into one of the world's largest ETFs, with assets exceeding $435.8 billion.
IVV has an expense ratio of 0.03%, matching VOO's cost, making it one of the more affordable ETFs in this article.
SPDR Portfolio S&P 500 ETF (SPLG)
Similar to SPY, SPLG is an ETF tracking the S&P 500 Index, launched by State Street Global Advisors. So why would State Street launch an ETF so similar to one of the largest funds globally, SPY? The answer lies in fees.
Instead of reducing costs on existing products, State Street introduced essentially a copy of its ETF with lower fees. This allows them to continue charging higher fees for existing ETFs while providing a more cost-effective option for retail investors.
Returns and Dividends
Since VOO, SPY, IVV, and SPLG track the same index and have nearly identical holdings, their performance is generally similar. Additionally, all four ETFs distribute dividends quarterly from their underlying companies. Here's their performance comparison.
Costs
Expense ratio is an important factor to consider when choosing an ETF. Over time, higher-cost funds may significantly impact your total returns. In the long run, all else being equal, cheaper funds may outperform more expensive ones.
Liquidity
One of the primary features of ETFs is their liquidity, enabling investors to sell funds quickly and efficiently for cash.
As mentioned earlier, SPY trades frequently due to its popularity. While this enhances SPY's liquidity, the trading volume for all four ETFs is extensive, making liquidity differences less important for the average investor.
VOO, SPY, IVV, SPLG: Which one should investors choose?
For most investors, the differences among these four ETFs are minimal. They all track the same index, hold similar stocks, and have comparable returns.
The main differences among SPY, VOO, IVV, and SPLG lie in their costs.
SPLG has the lowest cost at 0.02%, followed by VOO and IVV at 0.03%, and SPY at 0.09%. If you're a cost-conscious investor, VOO, IVV, and SPLG might be more attractive choices compared to SPY, as they have lower expense ratios. Conversely, if you're an active or institutional trader, you might appreciate SPY's higher liquidity.
Ultimately, VOO, SPY, IVV, and SPLG are all good choices. As the saying goes, the best time to invest was yesterday. What's more important is to start investing rather than spending too much time choosing among the four funds.