In this guide, we compare two of the most popular S&P 500 tracking investment products: VFIAX vs SPY.
VFIAX and SPY are comparable products, but there are notable differences between the two funds.
Regardless, both hold some very Undervalued Stocks that can reward investors over the long run.
VFIAX vs SPY – Full Comparison
Below you will find an in-depth comparison between VFIAX vs SPY.
Here is the VFIAX description from Vanguard’s website.
“As the industry’s first index fund for individual investors, the 500 Index Fund is a low-cost way to gain diversified exposure to the U.S. equity market.
The fund offers exposure to 500 of the largest U.S. companies, which span many different industries and account for about three-fourths of the U.S. stock market’s value.”
For transparency purposes, I currently own over $40,000 of VFIAX, but this guide is as objective as possible.
Best Vanguard Index Funds
SPY is a product created by SPDR and State Street Global Advisors. This is also a popular index fund.
“The SPDR S&P 500 ETF Trust seeks to provide investment results that, before expenses, correspond generally to the price and yield performance of the S&P 500 Index.
Launched in January 1993, SPY was the very first exchange-traded fund listed in the United States The S&P 500 Index is a diversified large-cap U.S. index that holds companies across all eleven GICS sectors.”
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VFIAX vs SPY: Custodial Provider
VFIAX is an index fund vehicle offered by Vanguard. SPY is an ETF vehicle offered by State Street Global Advisors.
Both Vanguard and State Street are well-respected brokerage institutions.
I am a little biased towards Vanguard, but that’s because I use them for most of my investments.
VFIAX vs SPY: Minimum Investment
VFIAX has a $3,000 minimum investment, but there is no minimum investment requirement for SPY.
From new investors I have talked with, a minimum investment is one of the most discouraging aspects of picking their first investment.
Thus, SPY is going to be a better choice for investors without a lot of capital.
$3,000 can be a big barrier to entry, but Vanguard does have S&P 500 ETFs with no minimums.
Also, VFIAX allows fractional share purchases, but SPY does not. You must buy whole shares of SPY.
For example, you can buy 0.37 shares of VFIAX, but not SPY. This pairs great with our dividend reinvestment strategy discussed below.
VFIAX vs SPY: Dividend Reinvestment
VFIAX and SPY both allow automatic dividend reinvestments, contributions, and withdrawals.
SPY does have an extra caveat, and it relates to not being able to purchase partial shares.
For example, say you receive $30 in quarterly dividends from SPY. You don’t have enough money to buy an entirely new share.
So, what are you going to do with this idle $30? That’s a problem you won’t have with VFIAX.
If you invested in VFIAX, you’d buy a partial share and call it a day.
This is one of the best ways to tap into the power of compounding interest.
I see a lot of new investors spending their dividends, and this drives me crazy!
I always reinvest for more future dividends and portfolio growth. This is easier to do with VFIAX.
So, you may be asking, “What are the underlying holdings for VFIAX and SPY?” Here are some of the top holdings for VFIAX (in no particular order):
- Wells Fargo
- United Health Group
Here are some of the top holdings for SPY (in no particular order):
- Berkshire Hathaway
- Principal Financial Group
Now, I may have pulled a little trick on you here for fun.
VFIAX and SPY really own the exact same holdings of the S&P 500, in the exact same proportion.
VFIAX has been growing in popularity as a staple fund for Vanguard in recent years. Here are a few of my favorite things about VFIAX.
- Vanguard Product
- Partial Shares and Dividends Reinvested
- Sweeping Diversification
- 0.04% Expense Ratio
AS I mentioned above, VFIAX has become my investment fund of choice, especially in my Roth IRA and other retirement accounts.
VFIAX keeps my investing fees extremely low (0.04%), so I get to keep a larger portion of my returns.
I am always guaranteed to match the market returns; it’s not sexy, but it works.
My dividends are always reinvested, and I can buy partial shares if I don’t have enough money for a full share.
Finally, VFIAX offers extremely broad diversification, across industries, asset classes, currencies, all for the low cost of one share.
This is one of the main reasons I don’t suggest buying individual stocks!
Here are a couple of downsides to investing in VFIAX.
- No Intraday Trading
- $3,000 minimum investment
The biggest downside to VFIAX (especially for new investors) is the $3,000 minimum investment.
This can be a big barrier to entry for young or new investors. I remember being a little disheartened when I did not initially meet the minimum.
I read John Bogle’s book “Little Book of Common Sense Investing”, and I immediately wanted to buy a Vanguard index fund.
Alas, I could not, and I had to settle for another Vanguard product in the meantime.
Finally, VFIAX does not allow intraday trading or have access to real-time price quotes.
This makes closing out a position extremely difficult; how do you sell when you don’t know the closing price?
SPY has been the flagship fund for SPDR for decades now. These are a few of my favorite things about the fund.
- Real-Time Pricing
- Popular Fund
- Historical Performance
In my opinion, SPY is the first product that comes to mind when I think about an S&P 500 ETF.
Maybe, it’s because they are always advertising on the Wall Street Journal and CNBC.
By being a popular S&P 500 product, they have more brand awareness than some of the other indexed custodial providers.
Next, SPY does allow intraday trading, which provides additional liquidity and planning opportunities for investors.
Lastly, you cannot argue with the historical performance of SPY, going back to 1993.
The investment returns speak for themselves; returns are never guaranteed, but their track record is solid!
Here are a couple of downsides to buying SPY.
- 0.095% Expense Ratio
- No Fractional Shares
- Dividend Complications
First, and most importantly to me as an investor, SPY has a high expense ratio for a passively managed investment product.
In fact, Vanguard, Fidelity, and Charles Schwab all have S&P 500 ETF products that have an expense ratio of 50% lower.
All these S&P 500 products have the exact same holdings and investment returns, so you should shoot for the product with the lowest fees.
By keeping the fees as low as possible, relative to peers, you can maximize returns when comparing apples to apples.
Additionally, SPY does not allow fractional share purchases, which complicates an investor’s dividend reinvestment strategy.
It’s not always easy to find an alternative use for your spare cash.
Other Fund Comparisons
I have written many other investment fund comparison reviews. I highly recommend reading any of the following for more information.
- QQQ vs SPY
- VTI vs SPY
- VFIAX vs VOO
- VFIAX vs FXAIX
- FXAIX vs SPY
- ARKK vs SPY
- VOO vs SPY
For more investing information, I suggest subscribing to the Wall Street Journal. They have tremendous information and reporting!
VFIAX and SPY – Final Thoughts
VFIAX and SPY are both S&P 500 tracking funds. The biggest differences are expense ratios, intraday trading, and minimum investments.
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VFIAX vs SPY FAQ
What’s the Difference Between VFIAX and SPY?
VFIAX is an S&P 500 index fund offered by Vanguard, and SPY is an S&P 500 ETF offered by State Street Global Advisors.
Is VFIAX or SPY Better?
VFIAX offers a lower expense ratio than SPY. The returns will be comparable.
What are the Holdings of VFIAX and SPY?
VFIAX and SPY both track the S&P 500.
How do I Buy VFIAX or SPY?
You can buy VFIAX or SPY on any brokerage website. I prefer to use Vanguard or Fidelity.