Should I invest in both VOO and SPY?
Should I Invest In Both VOO and SPY? Probably not, unless each fund satisfies different investment goals. For example, you might buy SPY if you want to trade actively, or even venture into day trading, because of its high volume, and buy VOO to hold over the long term because of its lower expenses.
VOO charges 3 basis points, while SPY charges 9 basis points. Both are very low cost compared to the average ETF in the US market. Both are great options, well diversified, are run by amazing teams. However, fees do matter, and you get what you don't pay for in the financial industry.
You only need one S&P 500 ETF
You could be tempted to buy all three ETFs, but just one will do the trick. You won't get any additional diversification benefits (meaning the mix of various assets) because all three funds track the same 500 companies.
If you want to own only the biggest and safest stocks, choose VOO. If you want more diversification and exposure to mid-caps and small-caps, choose VTI. If you can't decide, consider simply buying both of them (assuming that commissions are low or free).
Experts agree that for most personal investors, a portfolio comprising 5 to 10 ETFs is perfect in terms of diversification.
Buffett's favorite ETF
portfolio: the SPDR S&P 500 ETF Trust (NYSEMKT: SPY) and the Vanguard 500 Index Fund ETF (NYSEMKT: VOO). Both are index ETFs that track the S&P 500.
The most glaring difference between VOO and SPY is in their respective expense ratios. VOO sits at a very low 0.03%, while SPY has a still very low (but not quite as low as VOO) 0.0945%. Though the difference is just 0.0645% per year, it can add up over time.
At the end of the day, it might not be an either-or question. Having some of each type of fund can help diversify your portfolio across multiple dimensions. And if you have both tax-deferred, after-tax, and taxable accounts, you may have options for managing the tax liability of multiple types of funds.
How many ETFs are enough? The answer depends on several factors when deciding how many ETFs you should own. Generally speaking, fewer than 10 ETFs are likely enough to diversify your portfolio, but this will vary depending on your financial goals, ranging from retirement savings to income generation.
The disadvantages are complexity and trading costs. With so many ETFs in the portfolio, it's important to be able to keep track of what you own at all times. You could easily lose sight of your total allocation to stocks if you hold 13 different stock ETFs instead of one or even five.
Should you buy both VOO and QQQ?
VOO will offer consistent returns with diversification and lower costs. QQQ will offer you the opportunity to bring in higher returns, but these come with more risks and a higher cost. If you're looking for the best return possible on your money, then you're going to want to go with QQQ.
The VTI and VOO dividend yields are similar. The expense ratios are identical. VTI is older, but VOO is a larger ETF. VOO's performance edges VTI's over a 10-year investment horizon.
QQQ - Performance Comparison. The year-to-date returns for both stocks are quite close, with VOO having a 8.75% return and QQQ slightly lower at 8.34%. Over the past 10 years, VOO has underperformed QQQ with an annualized return of 12.97%, while QQQ has yielded a comparatively higher 18.50% annualized return.
This investment strategy seeks total return through exposure to a diversified portfolio of primarily equity, and to a lesser extent, fixed income asset classes with a target allocation of 70% equities and 30% fixed income. Target allocations can vary +/-5%.
The one time it's okay to choose a single investment
You wouldn't ever want to load up your portfolio with a single stock. But if you're buying S&P 500 ETFs, this is the one scenario where you might get away with only owning a single investment. That's because your investment gives you access to the broad stock market.
The greater a portfolio's exposure to the S&P 500 index, the more the ups and downs of that index will affect its balance. That is why experts generally recommend a 60/40 split between stocks and bonds. That may be extended to 70/30 or even 80/20 if an investor's time horizon allows for more risk.
Warren Buffet's 2013 letter explains the 90/10 rule—put 90% of assets in S&P 500 index funds and the other 10% in short-term government bonds.
An effortless way to build wealth. Most of Warren Buffett's portfolio through his holding company Berkshire Hathaway is comprised of individual stocks. He does own two ETFs, though, both of which are S&P 500 ETFs: the Vanguard S&P 500 ETF (VOO 0.65%) and the SPDR S&P 500 ETF Trust (SPY 0.62%).
Is Investing in the S&P 500 Less Risky Than Buying a Single Stock? Generally, yes. The S&P 500 is considered well-diversified by sector, which means it includes stocks in all major areas, including technology and consumer discretionary—meaning declines in some sectors may be offset by gains in other sectors.
One of the key attractive facets of the SPY ETF is that it's a highly liquid investment. Investors can easily buy or sell the ETF, making it appealing for any investment horizon.
Why should I buy SPY ETF?
Pros of Investing in the SPY ETF
This broad exposure to a wide range of companies and industries can reduce market risk. Convenience: Investing in a diversified ETF enables an investor to easily gain access to the stock market without having to research and analyze stocks or to actively maintain a portfolio.
Yes, it can make sense to invest in multiple index funds as part of a diversified investment portfolio. Diversification is an important investment strategy that can help reduce overall risk and increase potential returns.
Investing in multiple index funds can be a great way to build exposure and diversification in multiple emerging markets, and economies at once. Generally, it is considered less risky than putting all of your money into a single investment or asset class, but this also comes at some cost.
Investors face substantial risks with all leveraged investment vehicles. However, 3x exchange-traded funds (ETFs) are especially risky because they utilize more leverage in an attempt to achieve higher returns.
With enough time and consistency, you can earn well over $1 million with ETFs while still limiting your risk. Data source: Author's calculations via Investor.gov.
