Is the Vanguard S&P 500 the best S&P 500 ETF for you?

THE S&P500 (^GSPC -0.74%) is the cornerstone of many investment portfolios, representing the performance of 500 leading U.S. publicly traded companies. Thanks to its diversified coverage, the S&P 500 is a popular choice for investors seeking broad market exposure.

Exchange-traded funds (ETFs) can offer investors exposure to a broad basket of stocks, all within a single ticker symbol.

Where the convenience of ETFs intersects with the broad market exposure of the S&P 500, you’ll find a handful of index ETFs that leave security selection to the index manager and reflect its holdings as passively and automatically as possible.

Among the different S&P 500 ETFs availableTHE Vanguard S&P 500 ETF (VOO -0.74%) stands out as one of the main competitors – by a very small margin, but why not insist on the best?

Vanguard S&P 500 ETF Overview

The Vanguard S&P 500 ETF (I will hereafter refer to it as the “Vanguard ETF”) is designed to provide investors with exposure to the S&P 500 Index at a low cost. Famous for its higher expense ratio, the Vanguard ETF is a favorite among cost-conscious investors. The ETF aims to mirror the performance of the S&P 500 by holding a similar portfolio of stocks.

It is also a favorite asset of master investor Warren Buffett. THE Berkshire Hathaway (BRK.A -2.04%) (BRK.B -1.96%) portfolios under his wing contain exactly two ETFs, and the Vanguard fund is one of them. It’s a reassuring seal of approval from one of the greatest investing minds in history.

Comparison with other S&P 500 ETFs

When considering S&P 500 ETFs, the SPDR S&P 500 ETF Trust (TO SPY -0.73%) and iShares Core S&P 500 ETF (IVV -0.73%) are reasonable alternatives to the Vanguard ETF (let’s call them the “SPDR ETF” and the “iShares ETF” respectively). The iShares fund may seem to target something else, given the “main” part of the fund’s name. Given its name, one might assume that it follows a narrower list representing the core of the S&P 500. However, it tracks the same S&P 500 index as the other two names on this list – the name simply refers to this list which follows the heart of the S&P 500. the American stock market.

Here’s how the three ETFs compare.

The SPDR ETF offers a higher volume of options, which can be useful if you want to boost your returns with covered calls. Not my cup of tea, but it might be a selling point for some ETF selectors.

On the other hand, Vanguard and iShares ETFs have lower expense ratios, making them more profitable in the long run. For investors who do not engage in options trading, the cost advantages of Vanguard and iShares ETFs are obvious. And if you want the best of both worlds, the Vanguard ETF remains a very liquid name in the options market.

Performance analysis

Vanguard, SPDR, and iShares ETFs have consistently performed in line with the S&P 500. Here’s a look at their historical performance in terms of total returns:

Data collected from YCharts after market close on 05/21/2024.

These ETFs all track the S&P 500 Index closely, especially over the long term. Their performance is virtually identical in a given time frame. Honestly, you can’t really go wrong with any of them – but you’re reading this because you want to find the best option. The choice often comes down to three deciding factors:

• Expense ratios,
• Personal preferences regarding options trading, and
• Branding or name recognition.

This last point may seem irrelevant, but it has more power than you think. For example, the Warren Buffett connection guides me toward the Vanguard option, even though he also likes the SPDR fund. And Vanguard is the creation of Jack Bogle, the mastermind of index funds — another theoretical link that weighed in favor of the Vanguard ETF.

Suitability for different types of investors

The low expense ratios and robust performance of Vanguard and iShares ETFs make them excellent choices for long-term investors focused on profitability. Their liquidity ensures that they meet the needs of most investors, including those interested in options, although the SPDR ETF offers the highest options volume.

For investors looking for a simple, cost-effective way to invest in the S&P 500, the Vanguard and iShares ETFs stand out. Warren Buffett’s Berkshire Hathaway owns both Vanguard ETF and SPY, highlighting the credibility and trustworthiness of these ETFs. However, for those not engaged in options trading, the lower costs of Vanguard and iShares ETFs tip the scales in their favor.

^SPX data by Y Charts

Why Vanguard wins in a photo finish

The Vanguard S&P 500 ETF and the iShares Core S&P 500 ETF are all fantastic choices for investors who want to mirror the long-term returns of the S&P 500 stock index. Their low expense ratios and strong performance make them ideal for most investors.

But the Vanguard ETF is winning by the skin of its proverbial teeth in my eyes.

Although the SPDR ETF is a strong contender, especially for options traders, the Vanguard and iShares alternatives offer a minimal cost advantage that makes them standout options, especially for long-term investors. And if I ever start dabbling in options trades to increase my ETF’s returns, the Vanguard ETF gives me that option as well. You never know, right?

Whether you are a seasoned investor or just starting, the Vanguard, iShares, and SPDR versions of the S&P 500 ETFs are all solid bets for broad market exposure. If you insist on the best, the Vanguard fund offers a Goldilocks combination of the lowest possible fees and mid-range suitability for options trading.

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