Key Takeaways

  • Two specific S&P 500 ETFs offer distinct advantages for a long-term, low-cost entry into the U.S. market's premier benchmark.
  • While both track the same index, their structural differences in fees, dividend reinvestment, and share price create unique strategic opportunities for traders and investors.
  • A "buy and hold forever" strategy with these ETFs leverages compounding and market growth, but requires understanding the mechanics behind the funds to execute effectively.

The Power of a Simple Strategy: Accessing the S&P 500

For traders and long-term investors alike, the S&P 500 index represents the gold standard of U.S. equity market performance. It's a market-cap-weighted basket of 500 leading U.S. companies, offering instant diversification and a proven track record of growth over decades. The challenge for many, especially those starting with smaller capital like $100, is gaining efficient, low-cost exposure. This is where Exchange-Traded Funds (ETFs) shine. They trade like stocks but hold a portfolio of securities, and for the S&P 500, two titans stand out for a "forever" holding strategy: the SPDR S&P 500 ETF Trust (SPY) and the Vanguard S&P 500 ETF (VOO).

1. The Pioneer: SPDR S&P 500 ETF Trust (SPY)

Launched in 1993, SPY is the granddaddy of all ETFs. It holds the distinction of being the first U.S.-listed ETF and has grown into the world's largest and most liquid ETF. For traders, liquidity is a paramount concern, and SPY excels here with an average daily trading volume in the tens of billions of dollars. This massive liquidity translates to incredibly tight bid-ask spreads, minimizing the cost of entry and exit—a critical factor even for a long-term holder making initial and eventual additional investments.

Trader Insight: SPY's immense liquidity makes it the preferred vehicle for institutional traders, options writers, and algorithmic trading systems. This creates a highly efficient market for the ETF but also means its price action can be influenced by short-term trading flows beyond just the net asset value (NAV) of its underlying holdings. For a buy-and-hold investor, this is mostly noise, but it's important context.

However, SPY comes with a slightly higher expense ratio of 0.0945%. While this is low by historical standards, it's not the cheapest in the space. Its share price, typically around $500, also means a $100 investment buys a fractional share on most modern brokerage platforms. The key for a "forever" holder is SPY's established history and unparalleled market structure.

2. The Low-Cost Challenger: Vanguard S&P 500 ETF (VOO)

Vanguard's entry, VOO, is the embodiment of the firm's philosophy of minimizing costs for investors. With an expense ratio of just 0.03%, it is one of the cheapest ways to own the S&P 500. Over decades, the compounding effect of saving an extra 0.0645% annually compared to SPY can result in meaningful differences in terminal wealth, especially on a constantly reinvested portfolio.

Trader Insight: VOO's lower expense ratio is a pure, uncompounded advantage. It directly translates to higher net returns for shareholders over time. Furthermore, VOO is structured as a share class of a massive mutual fund, which can provide tax efficiencies related to how capital gains are distributed. For the ultra-long-term holder, these basis points and structural nuances matter profoundly.

VOO also trades at a lower share price (around $450), though still requiring fractional share trading for a $100 investment. Its liquidity, while excellent with billions traded daily, is less than SPY's, which can occasionally lead to marginally wider spreads—a consideration more for active traders than perpetual holders.

Comparative Analysis: SPY vs. VOO for the Long Haul

Choosing between these two for a decades-long holding period isn't about picking a winner and loser; it's about aligning the fund's characteristics with your personal strategy.

  • Cost Efficiency: VOO wins unequivocally. The 0.03% fee is a significant long-term advantage.
  • Liquidity & Trading Flexibility: SPY wins. Its volume and options market depth are unmatched, offering more tools for advanced strategies (like covered calls) even within a buy-and-hold framework.
  • Dividend Reinvestment: This is crucial for a "forever" hold. Both ETFs pay quarterly dividends. The critical step is ensuring your brokerage allows for automatic, commission-free dividend reinvestment (DRIP). With this enabled, your $100 initial investment, plus any future contributions and dividends, will continuously buy more shares, harnessing the full power of compounding.

What This Means for Traders

Even with a simple "buy and hold" mandate, a trader's mindset is valuable. First, execution matters. Use limit orders, not market orders, when buying your initial $100 position or adding to it, to ensure you get a fair price inside the bid-ask spread, especially with VOO where spreads can be slightly wider. Second, understand the ecosystem. SPY's dominance in the derivatives market means its price can sometimes lead or lag intraday moves in the actual S&P 500 cash index, offering potential arbitrage awareness. Third, embrace fractional shares. Modern brokerages allow you to put every dollar of your $100 to work immediately. Don't wait to save for a full share; start the compounding clock today with whatever capital you have.

The strategy also implies a core portfolio holding. Traders often surround a core position like SPY or VOO with tactical satellite investments. This ETF core provides stable, diversified beta (market exposure), freeing up other capital to pursue alpha (excess returns) through more targeted trades without jeopardizing foundational market exposure.

The Psychological Edge of a "Forever" Hold

Declaring an intention to hold "forever" is a powerful psychological tool. It forces you to ignore the market's daily volatility and macroeconomic noise. Your thesis is simple: the American economy and its largest public companies will be more valuable in 20, 30, or 50 years than they are today. By owning SPY or VOO, you are betting on economic and innovation progress itself. This mindset eliminates the temptation to time the market, which is a loser's game for the vast majority. The historical average annual return of the S&P 500 is about 10% before inflation. Your job is not to outsmart it, but to own it—consistently and cheaply.

Conclusion: Starting the Journey

With $100, the journey to building significant wealth through the stock market can genuinely begin. The choice between SPY and VOO is a choice between supreme liquidity (SPY) and minimal cost (VOO). For the pure, set-and-forget, forever investor, VOO's cost advantage likely tips the scale. For the investor who values ultimate tradability and may wish to employ options strategies against their core holding in the future, SPY remains the benchmark.

The most important step is to start. Open a brokerage account that supports fractional shares and automatic dividend reinvestment. Invest your $100 into one of these S&P 500 ETFs. Then, commit to a strategy of consistent, periodic additions—no matter how small. The "forever" hold isn't a single transaction; it's a lifelong discipline of trusting in market growth and compounding. In 2024 and beyond, these two ETFs remain the most straightforward vehicles to execute that timeless strategy.