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Hard Money Lending: Asset Location

One the biggest determinants of hard money after-tax returns is asset location. For those who are unfamiliar with asset location, it is framework for classifying the account types that investments are held in. One of the main reasons for considering asset location is to maximize after-tax returns (which can differ quite a bit from pre-tax returns).

Research indicates that higher-returning assets should be held in tax-advantaged accounts (such as an IRA, 401k, or Roth version of either) and lower-returning assets should be held in taxable accounts. If two assets have similar return profiles, then the more tax-efficient one should be held in a taxable account and the less tax-efficient one should be held in a tax-advantaged account. This all presumes that there is limited capital in a tax-advantaged account (otherwise investors would put all of their investments in a tax-advantaged account!). In short, tax-inefficient assets with high expected returns should should be prioritized for tax-advantaged allocations.

Hard money loans (and private debt, generally) fits the bill. Net expected returns are typically in the high single digits or low teens (which is on par with the long-term returns generated by stocks). Additionally, private debt is typically very tax-inefficient as it generally taxed at ordinary income tax rates. Even real estate lenders that elect REIT status are still taxed on 80% of their income. Yes, the 20% deduction helps, but not that much. So from a tax standpoint, there is a strong case that hard money lending should be held in a tax-advantaged account.

Every strategy and fund is unique, but I would say that the bar for investing in hard money lending and/or private debt in a taxable account is incredibly high. In many cases, I do not think it makes much (if any) sense to invest taxable dollars in these strategies because the tax drag is so incredibly high.

Risks Of Investing In Hard Money Lending In An IRA or 401k

The question I ask myself is: if I could generate equity-like returns with less risk and volatility, why wouldn’t I do that?

While my immediate answer is that its a rhetorical question, I can think of a few risks and reasons why investors may not want to invest in or concentrate hard money exposure in an IRA or 401k.

It’s not necessarily less risk. Sure, lending appears less risky until the defaults start and then that 10% return morphs into 2% return or a -5% return. My perception of risk could be incorrect.
Perhaps there are even better opportunities available. If the stock market is down 20-30%, maybe it’s better to invest in stocks. Or maybe it’s better to buy other assets from distressed sellers, such as private equity secondaries.
I’ve seen some multimillion dollar 401k’s and IRAs, but many are below $1 million dollars. The minimum investment for many small private lending funds is 100k or 250k. So investors are often giving up diversification in order to invest with a private lender in a tax-advantaged account.

How I Invest My Own Money

Don’t tell me what you think, tell me what you have in your portfolio.
Nassim Nicholas Taleb

As of 2023, the majority of my tax-advantaged accounts are invested in private lending funds. This is not a recommendation, but I’m personally comfortable with the risks that I am taking in order to generate the returns that I expect.

VUG vs VOOG

By Matt Shibata / Fund Comparison

The Vanguard S&P 500 Growth ETF (VOOG) and the Vanguard Growth ETF are both popular “factor” ETFs sponsored by Vanguard. In this context, factors are quantitative characteristics that index providers assign to stocks. Investors (including myself) evaluating VUG vs VOOG may find it somewhat odd that Vanguard sponsors two different large-cap growth funds that look and act nearly identical.

A quick reminder that this site does NOT provide investment recommendations. Fund comparisons (such as this one) are not conducted to identify the “best” fund (since that will vary from investor to investor based on investor-specific factors). Rather, these fund comparison posts are designed to identify and distinguish between the fund details that matter versus the ones that don’t.

The Short Answer

Both VOOG and VOOG own track large-cap growth indices. Historical performance has been nearly identical and I consider these two funds identical and interchangeable. VOOG is more expensive, but it is an immaterial difference in my opinion.

The Long Answer

Historical Performance: VUG vs VOOG

Both VOOG and VUG were launched in September 2010. Since then, performance has been identical with an annualized difference of only .06%! Interesting this is the exact same as the difference in the two funds’ expense ratios. The cumulative performance differential is about 3.5%.

Differences Between VUG and VOOG

The primary difference between these two funds is that VUG tracks the CRSP US Large Cap Growth Index, while VOOG tracks the broader S&P 500 Growth Index. Both have a similar number of stocks as well; VOOG owns 230 stocks, while VUG owns 253 (data as of 1/31/2023, per Vanguard).

Geographic Exposure

Both VUG and VOOG hold essentially 100% US stocks, so I will not dig into country exposures or market classification here. For all intents and purposes, the two funds have identical country exposures.

Market Cap Exposure

Overall, the market cap exposures of VUG and VOOG are nearly identical.

	VUG	VOOG
Large Cap	86%	91%
Mid Cap	12%	9%
Small Cap	0%	0%

Source: ThoughtfulFinance.com, Morningstar (as of 1/31/2023)

Sector Weights

There are some significant differences in sector weights, although these differences have not impacted performance historically.

	VUG	VOOG
Basic Materials	1.98%	2.42%
Consumer Cyclical	18.14%	9.87%
Financial Services	7.14%	7.56%
Real Estate	2.53%	1.07%
Communication Services	11.43%	7.00%
Energy	1.61%	8.22%
Industrials	4.74%	5.25%
Technology	40.70%	31.06%
Consumer Defensive	2.84%	7.19%
Health Care	8.90%	19.82%
Utilities	0.00%	0.54%

Source: ThoughtfulFinance.com, Morningstar (as of 1/31/2023)

Expenses

VUG’s expense ratio is .04%, while VOOG’s expense ratio is .10%. Yes, VUG is 150% more expensive than VOOG, but we’re talking about 6 basis point! This in an non-issue in my opinion.

Transaction Costs

ETFs are free to trade at many brokers and custodians, so both VUG and VOOG should be free to trade in most cases. Additionally, these funds are among the largest ETFs and are very liquid. The bid-ask spread of both VUG and VOOG is very low, so individual investor trades will not generally be large enough to “move” the market.

Tax Efficiency & Capital Gain Distributions

ETFs are typically more tax-efficient than mutual funds, due to their ability to avoid realizing capital gains through like-kind redemptions (a process that is beyond the scope of this post). Neither VUG nor VOOG has ever made a capital gains distribution (nor do I expect them to moving forward). Thus, these funds are about as tax-efficient as any fund can be and either fund is appropriate in taxable accounts.

Final Thoughts: VUG vs VOOG

VOOG and VUG are identical in nearly every way even though they track slightly different indices. Portfolio composition differs a bit, but historical performance has been identical. Personally, I consider these two funds identical and interchangeable.

VUG vs VOO

By Matt Shibata / Fund Comparison

The Vanguard S&P 500 ETF (VOO) is one of the largest ETFs and is a core holding of many portfolios, while the Vanguard Growth ETF is a popular “factor” ETF. In this context, factors are quantitative characteristics that index providers assign to stocks. In this case, VUG targets growth stocks (as they are defined by the index provider). Even though VOO and VUG play different roles in a portfolio, many investors compare the two funds in order to determine whether they should tilt their portfolio towards a factor or to benchmark a factor’s performance.

The Short Answer

VUG only owns stocks that are classified as growth stocks. VOO owns a more diverse portfolio including growth stocks. Historical performance has been similar, but will depend on how the growth factor performs moving forward.

The Long Answer

Historical Performance: VUG vs VOO

Both VOO and VUG were launched in September 2010. Since then, performance has been relatively similar with an annualized difference of roughly .98%. This has compounded over time though and the cumulative performance differential is about 52%.

As the VUG vs VOO chart shows, the growth factor has really outperformed the broader market since their common inception. However, this did change in 2022 as lines begin to converge again. It is anyone’s guess whether growth or value will perform better in the future.

Differences Between VUG and VOO

The primary difference between these two funds is that VUG tracks the CRSP US Large Cap Growth Index, while VOO tracks the broader S&P 500 index.

Geographic Exposure

Both VUG and VOO hold essentially 100% US stocks, so I will not dig into country exposures or market classification here. For all intents and purposes, the two funds have identical country exposures.

Market Cap Exposure

Overall, the market cap exposures of VUG and VOO are relatively similar.

	VUG	VOO
Large Cap	86%	85%
Mid Cap	12%	16%
Small Cap	0%	0%

Source: ThoughtfulFinance.com, Morningstar (as of 1/31/2023)

Sector Weights

There are some significant differences in sector weights, which makes sense based on the fact that VUG is targeting the growth factor and some sectors meet the growth factor criteria more easily.

	VUG	VOO
Basic Materials	1.98%	2.52%
Consumer Cyclical	18.14%	10.38%
Financial Services	7.14%	13.99%
Real Estate	2.53%	2.88%
Communication Services	11.43%	7.83%
Energy	1.61%	5.06%
Industrials	4.74%	8.76%
Technology	40.70%	23.76%
Consumer Defensive	2.84%	7.13%
Health Care	8.90%	14.75%
Utilities	0.00%	2.94%

Source: ThoughtfulFinance.com, Morningstar (as of 1/31/2023)

Expenses

VUG’s expense ratio is .04%, while VOO’s expense ratio is .03%. Yes, VUG is .33% more expensive than VOO, but we’re talking about 1 basis point! This in an non-issue in my opinion.

Transaction Costs

ETFs are free to trade at many brokers and custodians, so both VUG and VOO should be free to trade in most cases. Additionally, these funds are among the largest ETFs and are very liquid. The bid-ask spread of both VUG and VOO is very low, so individual investor trades will not generally be large enough to “move” the market.

Tax Efficiency & Capital Gain Distributions

ETFs are typically more tax-efficient than mutual funds, due to their ability to avoid realizing capital gains through like-kind redemptions (a process that is beyond the scope of this post). Neither VUG nor VOO has ever made a capital gains distribution (nor do I expect them to moving forward). Thus, these funds are about as tax-efficient as any fund can be and either fund is appropriate in taxable accounts.

Final Thoughts: VUG vs VOO

Both funds are great ETFs that do what they are designed to do. Generally speaking, I do not think factor ETFs should be the core of a portfolio. For a core position, I would personally choose VOO every time. However, investors looking for a satellite position in order to tilt their portfolio towards growth could do a lot worse than using VUG. At the end of the day, these two funds are not necessarily comparable because they play very different roles in a portfolio.

VOOG vs VOO

By Matt Shibata / Fund Comparison

The Vanguard S&P 500 ETF (VOO) is one of the largest ETFs and is a core holding of many portfolios, while the Vanguard S&P 500 Growth ETF is a popular “factor” ETF. In this context, factors are quantitative characteristics that index providers assign to stocks. In this case, VOOG targets growth stocks (as they are defined by the index provider). Even though VOO and VOOG play different roles in a portfolio, many investors compare the two funds in order to determine whether they should tilt their portfolio towards a factor or to benchmark a factor’s performance.

The Short Answer

VOOG essentially owns the subset of VOO’s holdings that are considered growth stocks. VOO owns a more diverse portfolio including growth stocks. Historical performance has been similar, but will depend on how the growth factor performs moving forward.

The Long Answer

Historical Performance: VOOG vs VOO

Both VOO and VOOG were launched in September 2010. Since then, performance has been relatively similar with an annualized difference of only .94%. This has compounded over time though and the cumulative performance differential is about 47%.

As the VOOG vs VOO chart shows, the growth factor has really outperformed the broader market since their common inception. However, this did change in 2022 as lines begin to converge again. It is anyone’s guess whether growth or value will perform better in the future.

Differences Between VOOG and VOO

The primary difference between these two funds is that VOOG tracks a growth-oriented index, while VOO tracks a broader index.

Geographic Exposure

Both VOOG and VOO hold essentially 100% US stocks, so I will not dig into country exposures or market classification here. For all intents and purposes, the two funds have identical country exposures.

Market Cap Exposure

Overall, the market cap exposures of VOOG and VOO are relatively similar.

	VOOG	VOO
Large Cap	91%	85%
Mid Cap	9%	16%
Small Cap	0%	0%

Source: ThoughtfulFinance.com, Morningstar (as of 1/31/2023)

Sector Weights

There are some significant differences in sector weights, which makes sense based on the fact that VOOG is targeting the growth factor and some sectors meet the growth factor criteria more easily.

	VOOG	VOO
Basic Materials	2.42%	2.52%
Consumer Cyclical	9.87%	10.38%
Financial Services	7.56%	13.99%
Real Estate	1.07%	2.88%
Communication Services	7.00%	7.83%
Energy	8.22%	5.06%
Industrials	5.25%	8.76%
Technology	31.06%	23.76%
Consumer Defensive	7.19%	7.13%
Health Care	19.82%	14.75%
Utilities	0.54%	2.94%

Source: ThoughtfulFinance.com, Morningstar (as of 1/31/2023)

Expenses

VOOG’s expense ratio is .10%, while VOO’s expense ratio is .03%. Yes, VOOG is 3x+ more expensive than VOO, but we’re talking about 7 basis points! This in an non-issue in my opinion.

Transaction Costs

ETFs are free to trade at many brokers and custodians, so both VOOG and VOO should be free to trade in most cases. Additionally, these funds are among the largest ETFs and are very liquid. The bid-ask spread of both VOOG and VOO is very low, so individual investor trades will not generally be large enough to “move” the market.

Tax Efficiency & Capital Gain Distributions

ETFs are typically more tax-efficient than mutual funds, due to their ability to avoid realizing capital gains through like-kind redemptions (a process that is beyond the scope of this post). Neither VOOG nor VOO has ever made a capital gains distribution (nor do I expect them to moving forward). Thus, these funds are about as tax-efficient as any fund can be and either fund is appropriate in taxable accounts.

Final Thoughts: VOOG vs VOO

Both funds are great ETFs that do what they are designed to do. Generally speaking, I do not think factor ETFs should be the core of a portfolio. For a core position, I would personally choose VOO every time. However, investors looking for a satellite position in order to tilt their portfolio towards growth could do a lot worse than using VOOG. At the end of the day, these two funds are not necessarily comparable because they play very different roles in a portfolio.

VTV vs VOO

By Matt Shibata / Fund Comparison

The Vanguard S&P 500 ETF (VOO) is one of the largest ETFs and is a core holding of many portfolios, while the Vanguard Value ETF is a popular “factor” ETF. In this context, factors are quantitative characteristics that index providers assign to stocks. In this case, VTV targets value stocks (as they are defined by the index provider). Even though VOO and VTV play different roles in a portfolio, many investors compare the two funds in order to determine whether they should tilt their portfolio towards a factor or to benchmark a factor’s performance.

The Short Answer

VTV essentially owns the subset of VOO’s holdings that are considered value stocks. VOO owns a more diverse portfolio including growth stocks. Historical performance has been similar, but will depend on how the value factor performs moving forward.

The Long Answer

Historical Performance: VTV vs VOO

VTV was launched in 2004, while VOO was launched in September 2010. Since then, performance has been relatively similar with an annualized difference of only .80%. This has compounded over time though and the cumulative performance differential is about 37%.

As the VTV vs VOO chart shows, the value factor has really lagged the broader market since VOO’s inception. However, this did change in 2022 as lines begin to converge again. It is anyone’s guess whether value or growth will perform better in the future.

Differences Between VTV and VOO

The primary difference between these two funds is that VTV tracks a value-oriented index, while VOO tracks a broader index.

Geographic Exposure

Both VTV and VOO hold essentially 100% US stocks, so I will not dig into country exposures or market classification here. For all intents and purposes, the two funds have identical country exposures.

Market Cap Exposure

Overall, the market cap exposures of VTV and VOO are relatively similar.

	VTV	VOO
Large Cap	79%	85%
Mid Cap	21%	16%
Small Cap	0%	0%

Source: ThoughtfulFinance.com, Morningstar (as of 1/31/2023)

Sector Weights

There are some significant differences in sector weights, which makes sense based on the fact that VTV is targeting the value factor and some sectors meet the value factor criteria more easily.

	VTV	VOO
Basic Materials	2.92%	2.52%
Consumer Cyclical	2.51%	10.38%
Financial Services	20.63%	13.99%
Real Estate	3.22%	2.88%
Communication Services	4.44%	7.83%
Energy	8.18%	5.06%
Industrials	12.51%	8.76%
Technology	8.48%	23.76%
Consumer Defensive	10.93%	7.13%
Health Care	20.58%	14.75%
Utilities	5.61%	2.94%

Source: ThoughtfulFinance.com, Morningstar (as of 1/31/2023)

Expenses

VTV’s expense ratio is .04%, while VOO’s expense ratio is .03%. Yes, VTV is 25% more expensive than VOO, but we’re talking about 1 basis point! This in an non-issue in my opinion.

Transaction Costs

ETFs are free to trade at many brokers and custodians, so both VTV and VOO should be free to trade in most cases. Additionally, these funds are among the largest ETFs and are very liquid. The bid-ask spread of both VTV and VOO is very low, so individual investor trades will not generally be large enough to “move” the market.

Tax Efficiency & Capital Gain Distributions

ETFs are typically more tax-efficient than mutual funds, due to their ability to avoid realizing capital gains through like-kind redemptions (a process that is beyond the scope of this post). Neither VTV nor VOO has ever made a capital gains distribution (nor do I expect them to moving forward). Thus, these funds are about as tax-efficient as any fund can be and either fund is appropriate in taxable accounts.

Final Thoughts: VTV vs VOO

Both funds are great ETFs that do what they are designed to do. Generally speaking, I do not think factor ETFs should be the core of a portfolio. For a core position, I would personally choose VOO every time. However, investors looking for a satellite position in order to tilt their portfolio towards value could do a lot worse than using VTV. At the end of the day, these two funds are not necessarily comparable because they play very different roles in a portfolio.

Exchange Funds

By Matt Shibata / Personal Finance

Not many individual investors are familiar with exchange funds (even though it’s a well-known tool among advisors) and whether they make sense for investors with low-basis stock. Every investor situation is different and there are multiple exchange funds in existence, so the below should not be considered advice or relied upon to make an investment decision. However, I am familiar with exchange funds and can provide some education around the topic.

What is an Exchange Fund?

To start, I should note that an “exchange fund” is not an “exchange-traded fund” (ETF). Exchange funds are private funds and typically organized as a 3(c)7 fund, which means that they are only available to “qualified purchasers.” To qualify as an qualified purchaser, individuals must own at least $5 million of investments (or $25 million if the investor is an entity) (see my post on the topic here). Minimum investments are often set in the $500,000 to $1,000,000 range. Fund purchases and redemptions are typically made “in-kind,” which means that investors contribute shares (instead of cash) to buy the fund and receive shares of stock (instead of cash) to exit the fund.

How Does An Exchange Fund Work?

Exchange funds represent a diversification strategy where an investor can exchange shares of a single stock for shares of the exchange fund. In other words, an investor can exchange an individual stock for a basket of stocks. Investors who stay invested for at least seven years can generally elect to receive a diversified basket of stocks when they redeem from the fund (holding periods of less than seven years are often redeemed with the same stock that was contributed, although the dollar value of the redemption may be less favorable).

Why Would An Investor Use An Exchange Fund?

Assume an investor owns $100 of a stock with a cost basis of $20. Rather than selling the stock, realizing $80 of capital gains, paying tax on the capital gains, and then re-investing the post-tax proceeds, an exchange fund investor could contribute the $100 of stock to the fund and receive $100 of fund shares. Rather than selling stock (and paying tax) in order to raise cash and then diversify, the exchange fund investor is able to diversify without creating a taxable event.

Why Wouldn’t an Investor Use an Exchange Fund?

I should note that exchange funds are not a good solution for every situation. Below are just a few situations where an exchange fund would not make sense:

Investors who need cash and/or liquidity should not invest in an exchange fund, as the investor is simply trading one investment for another (with the maximum benefit realized after seven years). Exchange funds are diversification strategy, but cannot help with unlocking liquidity.

Although exchange funds represent a way to defer tax, the capital gain remains embedded in the investments. The capital gain and tax liability is “transferred” from the single stock to the exchange fund and possibly to the redemption basket of stocks (if/when the investor exits). Thus, those who want to diversify and defer taxes may find value in an exchange fund. However, the funds do have expenses and costs, so these must be weighed against the benefits of the tax deferral.
Lastly, there is the issue of ability to invest. Typically, investors must be “qualified purchasers” and able to deliver at least $500,000 to $1 million of stock. Generally only “large cap” stocks can be contributed and the fund must have capacity for that specific stock.

Exchange funds can be a good solution for investors whose wealth is concentrated in low-basis stock positions. Nonetheless, I encourage investors to work with their advisor, accountant, and attorney in order to determine if an exchange fund is an appropriate strategy.

IVV vs VOO: An Expert’s Opinion

By Matt Shibata / Fund Comparison

The Vanguard S&P 500 ETF (VOO) and the iShares Core S&P 500 ETF (IVV) are two of the largest S&P 500 ETFs and are sponsored by Vanguard and Blackrock respectively. VOO and IVV are a core holding of many investor portfolios and many investors compare VOO vs IVV in order to decide which should be the foundation of their portfolio.

The Short Answer

VOO and IVV identical in nearly every way and risk/return between these two funds is nearly identical and I consider them interchangeable.

The Long Answer

Historical Performance: IVV vs VOO

IVV was launched back in 2000, while IVV was launched a decade later in September 2010. Since then, performance has been identical with VOO outperforming by .02% annually. The cumulative performance differential over the past decade plus is less than 1%!

Differences between IVV vs VOO

These two funds track the same S&P 500 index and so there are almost no differences between the funds.

Geographic Exposure

Both VOO and IVV hold essentially 100% US stocks, so I will not dig into country exposures or market classification here. For all intents and purposes, the two funds have identical exposures.

Market Cap Exposure

Again, I won’t dig into market cap exposures since they are identical for IVV and VOO.

Sector Weights

VOO and IVV sector weights are also identical.

Expenses

Both funds have an expense ratio of .03%, which is extremely low.

Transaction Costs

ETFs are free to trade at many brokers and custodians, so both VOO and IVV should be free to trade in most cases. Additionally, these funds are among the largest ETFs and are very liquid. The bid-ask spread of both VOO and IVV is about .01%, so individual investor trades will not generally be large enough to “move” the market.

Tax Efficiency & Capital Gain Distributions

ETFs are typically more tax-efficient than mutual funds, due to their ability to avoid realizing capital gains through like-kind redemptions (a process that is beyond the scope of this post). VOO has never made a capital gains distribution and IVV has not made a capital gains distribution since 1996 (and I do not expect it to moving forward). Thus, these funds are about as tax-efficient as any fund can be and either fund is appropriate in taxable accounts.

Options Strategies

Neither VOO nor IVV has a great options market, despite their enormous AUM. Investors looking to integrate options strategies into their S&P 500 exposure may want to look at SPY. It is more expensive than VOO or IVV, but it has the most liquid options of any ETF. Those interested should read my reviews of IVV vs SPY or VOO vs SPY.

Final Thoughts: IVV vs VOO

Both VOO and IVV are large, core funds sponsored and managed by two of the largest investment sponsors in the world. I view these two funds as essentially interchangeable and would not spend too much energy splitting hairs to decide which one is “better.” In my opinion, both funds are among the best S&P 500 ETFs out there and investors cannot really go wrong with either.

IVV vs SPY: Review by an expert

By Matt Shibata / Fund Comparison

The SPDR S&P 500 ETF Trust (SPY) and the iShares Core S&P 500 Index ETF (IVV) are two of the largest S&P 500 ETFs and are sponsored by State Street and Blackrock respectively. SPY and IVV are a core holding of many investor portfolios and many investors compare SPY vs IVV in order to decide which should be the foundation of their portfolio.

The Short Answer

SPY and IVV identical in nearly every way, except SPY is a higher cost vehicle than IVV. Despite these differences, the risk and return between these two funds is nearly identical and I consider them interchangeable.

The Long Answer

Historical Performance: IVV vs SPY

SPY was the first ever ETF and launched 1993, while IVV was launched a few years later in September 2000. Since then, performance has been nearly identical with IVV outperforming by .02% annually. The cumulative performance differential over the past decade plus is less than 2%. As the SPY vs IVV chart below indicates, the two funds are identical.

Differences between IVV vs SPY

These two funds track the same S&P 500 index and so there are almost no differences between the funds.

Geographic Exposure

Both SPY and IVV hold essentially 100% US stocks, so I will not dig into country exposures or market classification here. For all intents and purposes, the two funds have identical exposures.

Market Cap Exposure

Again, I won’t dig into market cap exposures since they are identical for IVV and SPY.

Sector Weights

SPY and IVV sector weights are also identical.

Expenses

As the first mover, SPY was able to capture market share early which has led to higher trading volumes and so on. As a result, SPY has been able to charge a premium relative to its competitors (like IVV). SPY’s expense ratio is .0945%, while IVV’s is less than a third of that at .03%. Although SPY is 3x more expensive than IVV, we are only talking about .06% which is immaterial in my opinion.

Transaction Costs

ETFs are free to trade at many brokers and custodians, so both SPY and IVV should be free to trade in most cases. Additionally, these funds are among the largest ETFs and are very liquid. The bid-ask spread of both SPY and IVV is about .01%, so individual investor trades will not generally be large enough to “move” the market.

Tax Efficiency & Capital Gain Distributions

ETFs are typically more tax-efficient than mutual funds, due to their ability to avoid realizing capital gains through like-kind redemptions (a process that is beyond the scope of this post). IVV has never made a capital gains distribution and SPY has not made a capital gains distribution since 1996 (and I do not expect it to moving forward). Thus, these funds are about as tax-efficient as any fund can be and either fund is appropriate in taxable accounts.

Options Strategies

The one situation where I would recommend SPY rather than IVV is if an investor plans to integrate covered calls or other options strategies since SPY options are WAY more liquid than IVV. Or someone might want to use IVV to avoid triggering wash sales with their SPY options. It is just something to keep in mind.

Final Thoughts: IVV vs SPY

Both SPY and IVV are large, core funds sponsored and managed by two of the largest investment sponsors in the world. Although SPY is more expensive than IVV, performance has been extremely similar.

I view these two funds as essentially interchangeable and would not spend too much energy splitting hairs to decide which one is “better.” In my opinion, both funds are among the best ETFs out there and investors cannot really go wrong with either.

VOO vs SPY: Identical, except for very slight differences

By Matt Shibata / Fund Comparison

The SPDR S&P 500 ETF Trust (SPY) and the Vanguard S&P 500 ETF (VOO) are two of the largest S&P 500 ETFs and are sponsored by State Street and Vanguard respectively. SPY and VOO are a core holding of many investor portfolios and many investors compare SPY vs VOO in order to decide which should be the foundation of their portfolio.

The Short Answer

SPY and VOO identical in nearly every way, except SPY is a higher cost vehicle than VOO. Despite these differences, the risk and return between these two funds is nearly identical and I consider them interchangeable.

The Long Answer

Historical Performance: VOO vs SPY

SPY was the first ever ETF and launched 1993, while VOO was launched a year later in September 2010. Since then, performance has been nearly identical with VOO outperforming by .06% annually. The cumulative performance differential over the past decade plus is about 3%.

Differences between VOO vs SPY

These two funds track the same S&P 500 index and so there are almost no differences between the funds.

Geographic Exposure

Both SPY and VOO hold essentially 100% US stocks, so I will not dig into country exposures or market classification here. For all intents and purposes, the two funds have identical exposures.

Market Cap Exposure

Again, I won’t dig into market cap exposures since they are identical for VOO and SPY.

Sector Weights

SPY and VOO sector weights are also identical.

Expenses

As the first mover, SPY was able to capture market share early which has led to higher trading volumes and so on. As a result, SPY has been able to charge a premium relative to its competitors (like VOO). SPY’s expense ratio is .0945%, while VOO’s is less than a third of that at .03%. Although SPY is 3x more expensive than VOO, we are only talking about .06%. Perhaps not surprisingly, this is the amount by which VOO has outperformed SPY on an annualized basis. See above.

Transaction Costs

ETFs are free to trade at many brokers and custodians, so both SPY and VOO should be free to trade in most cases. Additionally, these funds are among the largest ETFs and are very liquid. The bid-ask spread of both SPY and VOO is about .01%, so individual investor trades will not generally be large enough to “move” the market.

Tax Efficiency & Capital Gain Distributions

ETFs are typically more tax-efficient than mutual funds, due to their ability to avoid realizing capital gains through like-kind redemptions (a process that is beyond the scope of this post). VOO has never made a capital gains distribution and SPY has not made a capital gains distribution since 1996 (and I do not expect it to moving forward). Thus, these funds are about as tax-efficient as any fund can be and either fund is appropriate in taxable accounts.

Options Strategies

The one situation where I would recommend SPY rather than VOO is if an investor plans to integrate covered calls or other options strategies since SPY options are WAY more liquid than VOO. Or someone might want to use VOO to avoid triggering wash sales with their SPY options. It is just something to keep in mind.

Final Thoughts: VOO vs SPY

Both SPY and VOO are large, core funds sponsored and managed by two of the largest investment sponsors in the world. Although SPY is more expensive than VOO, performance has been extremely similar.

VTI vs SPY: Similar, with one slight difference

By Matt Shibata / Fund Comparison

The SPDR S&P 500 ETF Trust (SPY) and the Vanguard Total Stock Market ETF (VTI) are two of the largest ETFs and are sponsored by State Street and Vanguard respectively. SPY and VTI are a core holding of many investor portfolios and many investors compare SPY vs VTI in order to decide which should be the foundation of their portfolio.

The Short Answer

The biggest difference is that SPY hold mostly large-cap stocks, while VTI is a “total market fund” and includes more mid-caps and small-caps. Despite these differences, the risk and return between these two funds is nearly identical and I consider them interchangeable.

The Long Answer

Historical Performance: VTI vs SPY

SPY was the first ETF ever and was launched back in 1993, while VTI was launched a few years later in May 2000. Since then, VTI has outperformed by .39% annually. That being said, the performance between these two funds is extremely close and shows that modest differences in market cap exposure does not impact total returns that much. The cumulative performance differential over the past two decades is about 36%.

Differences between VTI vs SPY

The biggest difference between SPY and VTI is the market cap exposure of the funds. SPY tracks the S&P 500 index which includes mostly large-caps and some mid-caps. VTI tracks the CRSP US Total Market Index which covers much more of the market by including more mid-caps and small-caps.

Geographic Exposure

Both SPY and VTI hold essentially 100% US stocks, so I will not dig into country exposures or market classification here. For all intents and purposes, the two funds have identical exposures.

Market Cap Exposure

SPY tracks the S&P 500 index and so it mostly holds large-caps with a bit of mid-cap exposure. VTI tracks the broader CRSP US Total Market Index and so it owns many more mid-caps and small-caps. In other words, SPY is a large-cap vehicle and VTI is a total market vehicle. That being said, due to market cap weighting, both funds are overwhelmingly influenced by the large-cap holdings.

	SPY	VTI
Large-Cap	84%	73%
Mid-Cap	16%	19%
Small-Cap	0%	8%

Source: ThoughtfulFinance.com, Morningstar; data as of 12/31/2022

Sector Weights

The sector weights between SPY and VTI are nearly identical.

	SPY	VTI
Basic Materials	2.51%	2.65%
Consumer Cyclical	9.64%	9.77%
Financial Services	14.20%	13.93%
Real Estate	2.81%	3.51%
Communication Services	7.44%	6.71%
Energy	5.16%	5.15%
Industrials	9.11%	10.07%
Technology	22.62%	22.48%
Consumer Defensive	7.65%	6.98%
Healthcare	15.71%	15.69%
Utilities	3.15%	3.07%

Source: ThoughtfulFinance.com, Morningstar; data as of 12/31/2022

Expenses

The expense ratio for VTI funds is .03%, while SPY’s is .0945%. On the one hand, SPY is 3x more expensive than VTI. One the other hand, its only a 6.5 basis point difference and not material in my opinion. Investors looking for a lower cost S&P 500 ETF may want to consider IVV or VOO. Read my comparison of VOO vs VTI or VTI vs IVV.

Transaction Costs

ETFs are free to trade at many brokers and custodians, so both SPY and VTI should be free to trade in most cases. Additionally, these funds are among the largest ETFs and are very liquid. The bid-ask spread of both SPY and VTI is about .01%, so individual investor trades will not generally be large enough to “move” the market.

Tax Efficiency & Capital Gain Distributions

ETFs are typically more tax-efficient than mutual funds, due to their ability to avoid realizing capital gains through like-kind redemptions (a process that is beyond the scope of this post). VTI has never made a capital gains distribution and SPY has not made a capital gains distribution since 1996 (and I do not expect it to moving forward). Thus, these funds are about as tax-efficient as any fund can be and either fund is appropriate in taxable accounts.

Options Strategies

The one situation where I would recommend SPY rather than VTI is when an investor plans to integrate covered calls or other options strategies since SPY options are WAY more liquid than VTI. Or someone might want to use VTI to avoid triggering wash sales with their SPY options. It is just something to keep in mind.

Final Thoughts: VTI vs SPY

Both SPY and VTI are large, core funds sponsored and managed by two of the largest investment sponsors in the world. Although SPY is more of a large-cap ETF and VTI is a total market ETF, performance has been extremely similar.

I view these two funds as essentially interchangeable and would not spend too much energy splitting hairs to decide which one is “better” (unless one has a clear view on whether larger caps or smaller caps will perform better in the future and even then the difference won’t be much)! In my opinion, both funds are among the best ETFs out there and investors cannot really go wrong with either.