SPY vs VIG: Which ETF is Right for You?
LAST UPDATED: July 18, 2023 | By Conrad Golly
Are you looking to build a long-term portfolio? Consider investing in ETFs like SPY and VIG that track well-known equity benchmarks.
SPY vs VIG: While both ETFs offer exposure to large-cap U.S. stocks, they have different investment strategies and performance. SPY offers a broader range of large-cap stocks, while VIG emphasizes companies with a history of dividend growth.
If you’re seeking lower risk, VIG may be the way to go. It has achieved a five-year annualized return of 15.63%, compared to SPY’s 17.12%. So, whether you’re a risk-taker or not, both ETFs have their benefits. The choice ultimately depends on your investment goals and risk tolerance.
SPY vs VIG: What’s the Difference?
SPY and VIG are two popular ETFs that offer investors exposure to US equities. While both ETFs aim to provide investors with long-term growth and income, there are some key differences between them.
Holdings
SPY tracks the S&P 500 index, which is composed of 500 large-cap US companies. This means that SPY is heavily weighted towards large blend companies, such as Apple, Microsoft, and Amazon.
On the other hand, VIG tracks the NASDAQ US Dividend Achievers Select Index, which is composed of US companies that have a record of increasing their dividends for at least 10 consecutive years. This means that VIG is heavily weighted towards dividend growth companies, such as Johnson & Johnson, PepsiCo, and Procter & Gamble.
Expense Ratio
Expense ratio is the annual fee charged by the ETF provider to cover operating expenses. SPY has an expense ratio of 0.09%, while VIG’s expense ratio is 0.06%. This means that VIG is slightly cheaper than SPY.
Risk and Returns
SPY has a higher exposure to the technology sector and a higher standard deviation than VIG. This means that SPY has a higher level of volatility and risk than VIG.
However, SPY has provided higher returns than VIG over the past ten years. For example, SPY has achieved an average annual return of 14.7% over the past ten years, while VIG has achieved an average annual return of 13.2%.
Dividend Yield
VIG has a higher dividend yield than SPY. For example, VIG has a dividend yield of 1.8%, while SPY has a dividend yield of 1.4%. This means that VIG provides investors with a higher level of income than SPY.
Diversification
Both SPY and VIG offer investors a high level of diversification. SPY tracks the S&P 500 index, which is composed of 500 large-cap US companies across various sectors.
VIG tracks the NASDAQ US Dividend Achievers Select Index, which is composed of US companies that have a record of increasing their dividends for at least 10 consecutive years. This means that both ETFs provide investors with exposure to a wide range of US equities.
SPY: Overview and Performance
SPY, also known as the SPDR S&P 500 ETF Trust, is one of the most popular ETFs in the world. It is an investment fund that tracks the performance of the S&P 500, which is an index of 500 large-cap US equities. The ETF was launched in 1993 and has since then grown to become one of the largest ETFs in the world, with over $400 billion in assets under management.
One of the main reasons why SPY is so popular is its performance. Over the years, the ETF has delivered strong returns to investors. For example, over the past 10 years, SPY has had an average annual return of 16.57%.
This is significantly higher than the average return of the S&P 500, which is around 10%. This means that investors who hold SPY have been able to generate higher returns than those who invest in the S&P 500 directly.
Another reason why SPY is so popular is its low expense ratio. The expense ratio is the fee that investors pay to the fund manager for managing the ETF. SPY has an expense ratio of just 0.09%, which is significantly lower than the average expense ratio of ETFs in the US. This means that investors who hold SPY are able to keep more of their returns, as they are not paying high fees to the fund manager.
However, it is important to note that investing in SPY does come with some risks. One of the main risks is volatility. Because SPY tracks the performance of the S&P 500, which is made up of large-cap US equities, the ETF can be affected by market volatility. This means that the value of the ETF can go up and down rapidly, which can be unsettling for some investors.
Another risk is the beta of the ETF. Beta is a measure of how much the ETF’s returns are affected by changes in the market. SPY has a beta of 1, which means that its returns are directly correlated to the performance of the S&P 500. This means that if the S&P 500 goes up, so does SPY, and if the S&P 500 goes down, so does SPY.
In terms of dividends, SPY has a dividend yield of around 1.3%. This means that investors who hold SPY can expect to receive regular dividend payments from the ETF. However, it is important to note that the dividend growth of SPY is not as high as some other ETFs, such as VIG. This means that investors who are looking for high dividend growth may want to consider other ETFs.
VIG: Overview and Performance
VIG is an exchange-traded fund (ETF) that invests in US equities. Its primary objective is to provide investors with exposure to companies that have a history of increasing dividends over time. It is managed by Vanguard, one of the largest and most respected investment management companies in the world.
VIG has a strong track record of performance, having achieved an average annual return of 10.62% over the past 10 years. This compares favorably to the S&P 500 index, which has returned an average of 9.88% over the same period.
VIG has also outperformed its benchmark, the NASDAQ US Dividend Achievers Select Index, which has returned an average of 9.60% over the past 10 years.
One of the key factors that has contributed to VIG’s strong performance is its focus on companies with a history of dividend growth. Dividend growth is an important measure of a company’s financial health and stability, as it indicates that the company is generating strong earnings and has the ability to continue to pay and increase its dividends over time.
VIG’s portfolio is comprised of a mix of large-cap and mid-cap companies, with a focus on sectors such as consumer staples, healthcare, and industrials. The fund’s top holdings include companies such as Microsoft, Johnson & Johnson, and Visa. These companies have a strong track record of earnings growth and are well-positioned to continue to generate strong returns in the future.
In terms of expenses, VIG has an expense ratio of 0.06%, which is lower than the average expense ratio for ETFs. This means that investors can benefit from VIG’s strong performance without having to pay high fees.
Comparing SPY and VIG
SPY and VIG are both popular ETFs that invest in US equities. While they may seem similar on the surface, there are some key differences to consider when deciding which one to invest in.
Performance
When it comes to performance, SPY has historically provided higher returns than VIG. Over the past 10 years, SPY has achieved an annualized return of 16.88%, while VIG has achieved an annualized return of 14.94%. However, it’s important to note that past performance is not a guarantee of future results.
Holdings
SPY tracks the S&P 500 index, which includes 500 large-cap US companies. VIG, on the other hand, tracks the NASDAQ US Dividend Achievers Select Index, which includes US companies with a history of consistent dividend growth. This means that VIG may be a better choice for investors looking for exposure to companies with strong dividend growth potential.
Expense Ratio
Expense ratio is the annual fee that an ETF charges its investors. SPY has a lower expense ratio than VIG, with 0.09% compared to VIG’s 0.06%. This may not seem like a significant difference, but over time, it can add up and impact returns.
Risk and Volatility
SPY has a higher level of volatility than VIG, with a beta of 1.0 compared to VIG’s beta of 0.71. This means that SPY is more sensitive to market fluctuations than VIG, which may make it a riskier investment. However, SPY also offers more diversification across sectors and companies, which can help mitigate risk.
Dividend Yield and Growth
VIG has a higher dividend yield than SPY, with a current yield of 1.98% compared to SPY’s 1.39%. Additionally, VIG focuses on companies with a history of consistent dividend growth, which means that investors may see their dividend payments increase over time.
Portfolio Growth
When it comes to portfolio growth, both SPY and VIG have shown strong performance over the past decade. However, SPY has provided higher returns overall, while VIG has offered a more stable growth trajectory.
SPY vs VIG: Which is Right for You?
When it comes to choosing between SPY and VIG, it ultimately depends on your investment goals and risk tolerance. Both ETFs have their own unique characteristics that may suit different types of investors. Here’s a breakdown of the key differences between SPY and VIG to help you make an informed decision.
Expense Ratio
One of the most significant differences between SPY and VIG is their expense ratio. SPY has a lower expense ratio of 0.09%, while VIG has an expense ratio of 0.06%. This means that VIG is slightly cheaper to own than SPY. However, the difference in expense ratio may not be significant enough to sway your decision.
Holdings
SPY tracks the S&P 500 index, which includes 500 of the largest US companies by market capitalization. On the other hand, VIG tracks the NASDAQ US Dividend Achievers Select Index, which includes companies that have a history of increasing their dividends for at least ten consecutive years. This means that VIG has a focus on dividend growth, while SPY provides exposure to a broader range of companies.
Dividend Yield
Since VIG focuses on dividend growth, it has a higher dividend yield than SPY. As of May 26, 2023, VIG has a dividend yield of 1.80%, while SPY has a dividend yield of 1.35%. This means that VIG may be a better choice for investors looking for a steady stream of income from their investments.
Risk and Returns
When it comes to risk and returns, SPY has historically been more volatile than VIG. However, SPY has also provided higher annual returns than VIG over the long term. For example, over the past five years, SPY has achieved an annualized return of 17.12%, while VIG has achieved an annualized return of 15.63%. This means that SPY may be a better choice for investors looking for higher returns, while VIG may be a better choice for investors looking for lower risk.
Diversification
Both SPY and VIG provide exposure to US equities, but they differ in their approach to diversification. SPY provides exposure to a broad range of companies across multiple sectors, while VIG focuses on companies with a history of increasing their dividends. Additionally, VIG has a higher concentration of large-cap stocks than SPY. This means that SPY may provide more diversification than VIG.
The Bottom Line: SPY vs VIG
How you invest depends on many circumstances but its historically always good to invest with a long time horizon with lost cost index and ETFs like SPY vs VIG.
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