SPY's High Fees: A Hidden Cost

0:00From the streets of Durham to the world, this is Durham News Today. Many people think all S&P 500 funds perform the same since they track identical stocks. But a new Morningstar analysis shows that's not true. The super-popular SPY fund, with nearly $700 billion in assets, charges 0.0945% in fees. That's more than three times higher than rivals, like Vanguard's VOU at 0.03%. Or Fidelity's FX AIX at just 0.015%. SPY's higher costs come from its old unit investment trust structure dating back to 1993. Unlike modern ETFs, it can't reinvest dividends right away, creating a small drag on returns. State Street even launched a cheaper version called SPYM to compete, which topped 10-year performance charts through early 2026. Over 30 years, these tiny fee differences add up big on a $100,000 investment.

1:02You pay about $2,800 in fees to SPY, versus just 900 for VOU or 450 for FX AIX. That gap grows even larger with compounding, hitting long-term savers hardest, while day traders might not mind the liquidity. For taxable accounts, stick to ETFs like VOU, IVV, or SPYM for better tax efficiency with no capital gains distributions, in IRAs or 401Ks low-cost mutual funds like FX AIX Shine. Morningstar rates VOU and IVV gold for most investors, urging everyone to check expense ratios below 0.05%. One more heads up, every S&P 500 fund has heavy concentration in top tech stocks, about 36% of assets. Watch so-called free funds too, like Fidelity Zero-Fee option, which tracks a different index and underperforms the real benchmark. This story is made possible by our sponsor, see the episode description. Headphones in a pillow, simple idea, surprisingly addictive, S-O-L-I, solely pillow.com.

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