At Extreme Investor Network, we pride ourselves on providing insightful and cutting-edge information in the world of finance. Today, we’ll be diving into a seismic shift that is currently taking place among the largest exchange-traded funds (ETFs) globally, which could reshape the landscape of the ETF universe as we know it.
The SPDR S&P 500 ETF Trust (NYSE: SPY), the largest ETF with over $500 billion in assets under management, has been experiencing significant outflows since the beginning of the year. In contrast, its lower-cost competitor, the Vanguard S&P 500 ETF (NYSE: VOO), has been attracting a significant amount of investments. This begs the question: Is it time to switch from SPY to VOO?
The primary driver behind this trend seems to be the cost associated with managing these funds rather than their performance. SPY has an expense ratio of 0.09%, which is significantly higher than some of its direct competitors. Even a few basis points can make a considerable difference in investor returns over time, especially for institutional or very large individual investors.
On the other hand, VOO and other low-cost peers have expense ratios as low as 0.03%, making them more attractive to cost-conscious investors. While the difference of 0.06% in expense ratios may seem negligible, it can add up to significant savings over time, especially for investors with large portfolios.
For instance, on a $10,000 investment, choosing VOO over SPY could save an investor $6 annually. However, for a $10 million investment, the annual savings jump to $6,000. These savings can compound over time, resulting in substantial divergences in end wealth due to the effect of compounding returns.
When considering a switch from SPY to VOO, investors should also weigh any potential tax implications or transaction costs associated with such a move. For those with substantial holdings in SPY, it may be more beneficial to maintain the investment and start diverting new funds into a more cost-effective ETF like VOO.
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