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Investing in the S&P 500 contributes to the growth of the US economy over time.
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The Vanguard S&P 500 ETF has a significantly lower expense ratio compared to the SPDR S&P 500 ETF trust.
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Employing strategies like dollar-cost averaging can alleviate the urge to time the market.
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I prefer Vanguard S&P 500 ETF more than, say, ten other stocks.
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When Exchange-Traded Funds (ETFs) were introduced, it changed the investment landscape, allowing individuals to build diverse portfolios with fewer investments, easing some of the previous barriers for potential investors.
SPDR S&P 500 ETF Trust (nysemkt: spy) holds an important position in US stock market history. It’s the first listed ETF in the US and is currently the second largest globally, managing over $610 billion as of June 19th.
Few ETFs can form the backbone of your stock portfolio, but SPY, like the S&P 500 ETF, checks all the boxes for diversification, access to blue-chip companies, and proven results.
S&P 500 (snpindex: ^gspc) tracks the largest 500 American companies in the stock market, often viewed as a broad measure of the US economy. So when you invest in SPY, it’s like putting your money into the growth of the US economy.
The tech sector has gained a significant foothold within SPY over recent years, representing a large portion of the ETF’s composition, while still including leaders from all sectors.
|
Sector
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ETF percentage
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Information Technology
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32.40%
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Financial
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13.93%
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Consumer Discretionary
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10.43%
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Communication Services
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9.80%
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Health Care
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9.53%
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Industrials
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8.60%
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Consumer Staples
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5.63%
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Energy
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3.23%
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Utilities
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2.41%
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Real Estate
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2.11%
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Materials
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1.93%
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Data Source: State Street Global Advisors. Percentages as of June 17th.
Interestingly, nine of the top ten SPY holdings are tech companies, with Berkshire Hathaway as the only exception.
The S&P 500 undergoes rebalancing quarterly, which causes changes in these percentages as SPY adjusts its holdings. Hence, when investing in other stocks, make sure to complement this ETF to maintain a well-diversified portfolio aligned with your risk tolerance.
Despite the merits of SPY, I personally lean towards the Vanguard S&P 500 ETF (nysemkt: voo) primarily due to its more favorable expense ratio. VOO’s is 0.03%, whereas SPY’s is 0.0945%.
Expense ratio refers to the annual fee as a percentage of your total investment value. Although differences may seem minimal on paper, they accumulate significantly as your investments grow.
To illustrate this, let’s consider an investment of $500 monthly with an average annual return of 10%. Below are the fee comparisons between VOO and SPY.
|
Year of Investment
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Fees at 0.03% Expense Ratio
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Fees at 0.0945% Expense Ratio
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10
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137
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431
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15
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452
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1,422
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20
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1,168
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3,666
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25
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2,655
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8,321
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30
|
5,588
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17,488
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Calculations by the author. Rates rounded to the nearest dollar.
Even with identical index investments, the differences in ETF fees can add up to substantial amounts over the years.
Neither SPY nor VOO are expected to see swift growth in investments, but they’re solid choices that have historically offered reliable returns.
The best strategy is to maintain consistent investing habits, regardless of market conditions. That’s where techniques like dollar-cost averaging prove useful, as they ease the pressure to time the market.
Sometimes you’ll buy when prices are down, and other times when they’re climbing. The idea is to trust in long-term growth. While past performance isn’t an assurance of future results, it has generally held true with the S&P 500.
Keep this in mind when considering an investment in the Vanguard S&P 500 ETF.
Motley Fool Stock Advisor has identified what they call the 10 best stocks to invest in right now, and surprisingly, the Vanguard S&P 500 ETF isn’t one of them. These stocks may hold the potential for higher returns in the coming years.
Just think about it! If you had invested $1,000 into Netflix when I recommended it, it would be worth about $664,089 today!
Similarly, investing in Nvidia back in April 2005 would have grown that $1,000 to roughly $881,731.
It’s crucial to acknowledge that according to Stock Advisor, the average return for their recommended stocks stands at 994%, which greatly outpaces the S&P 500’s 172%.
Don’t miss the updated Top 10 list that could guide your investment strategy!
*This return is based on figures as of June 9, 2025.
Stephon Walters holds a position in Vanguard S&P 500 ETF. The Motley Fool also recommends Berkshire Hathaway and Vanguard S&P 500 ETF. Check the Disclosure Policy for more.
While SPY may be suitable for many, my preference tilts towards the VOO ETF. Originally published by The Motley Fool
