In the ETF marketplace, there are two funds that stand above the rest - the SPDR S&P 500 ETF (SPY) and the Vanguard S&P 500 ETF (VOO). Combined, they account for more than $1 trillion of investor money.

Many investors may assume that the two are interchangeable when choosing one or the other for your portfolio. For some, that may not necessarily be the case.

SPY vs. VOO: Is There A Difference?

Since both ETFs track the S&P 500, there's essentially no difference in what's in the portfolio. The differences, if there are any, usually exist on the fringes. When it comes to judging between two virtually identical ETFs, the tiebreaker often comes down to the cost of ownership - the expense ratio and trading spreads.

SPY is often considered the trader's ETF, while VOO's reputation is as the investor's ETF. People can certainly use either ETF for either purpose and be just fine, but if you're firmly in one camp or the other, there may be some advantages in choosing one ETF specifically.

The first data point to consider is expense ratio. On this metric, VOO clearly comes out ahead. Its 0.03% expense ratio is less than one-third that of SPY's 0.0945% number. In isolation, that would seemingly make VOO the better choice, but there's more to consider.

That additional factor is liquidity. Even though these ETFs both have roughly a half trillion dollars of assets each, one is much more liquid than the other. VOO trades roughly $2 billion worth of shares on an average day. SPY trades more than $25 billion worth. That makes SPY much more liquid and makes it much cheaper to trade.

The average spread on a SPY trade is currently around 0.002%. The same number for VOO is nearly 0.005%. Admittedly, these are very small numbers regardless and the cost of trading SPY and VOO is almost immaterial for a lot of investors. But if you're a big trader or a frequent trader, it can make a difference.

Let's assume that each trade nets a 0.003% cost advantage in favor of SPY, but it has a 0.0645% expense ratio gap to make up. Do the math and we see that it would take 22 trades per year for SPY to overtake VOO in terms of a total cost of ownership advantage.

This is why SPY is still considered more advantageous for traders and big institutions despite its expense ratio disadvantage. If you're making as little as two trades a month on the S&P 500, SPY can make more sense.

SPY vs. VOO: Which Should You Choose?

It really comes down to your personal behavior.

If you're a long-term investor and you're just making periodic purchases to try to build your retirement nest egg or long-term wealth in general, VOO probably makes more sense. If you're not trading in and out and building up trading spread costs, it's best to take advantage of the lower expense ratio.

If you're a frequent trader, SPY probably makes more sense if you trade enough. Those trading spread savings, while tiny on an individual basis, still add up and can quickly negate any advantage on expense ratio that VOO might have.

SPY vs. VOO is a great example of how although expense ratio can be the great differentiator between two seemingly similar funds, you have to dig deeper to figure out which one really has the advantage in your personal situation.