VOO vs. SPYI: Why Income Investors Pay to Underperform

Ah, the age-old investor dilemma: do you want to own the whole S&P 500 cheaply and efficiently with Vanguard’s beloved VOO, or do you want to pay up for a fund like SPYI, which promises you “income innovation” but ends up handing you back your own money disguised as dividends while quietly lagging the market? It’s like choosing between drinking water from a clean mountain stream or sipping flat soda from a plastic cup at a gas station. Both hydrate you, technically—but only one doesn’t leave you with buyer’s remorse.

This blog is for the income-chasers, the dividend-maximalists, and the folks who think monthly distributions are the holy grail. Spoiler alert: that monthly payout may just be your capital draped in a bow, a financial magic trick that would make even David Copperfield blush. By the end, you’ll understand why paying to underperform isn’t just a mistake—it’s a full-on lifestyle choice.

Section 1: The Two Contenders

VOO – The Vanguard S&P 500 ETF

Let’s start with the fan favorite: VOO. Vanguard’s flagship S&P 500 tracker. Expense ratio? A minuscule 0.03%. Portfolio? Exactly what it says on the tin—500 of the biggest, baddest U.S. companies, in market-cap weighted glory. Dividends? A humble ~1.4% yield. VOO is boring. VOO is efficient. VOO is what Jack Bogle would bequeath to you if he could.

Translation: you buy VOO, you shut up, and you let compounding do the work while you brag to your friends about your expense ratio being lower than their Starbucks order.

SPYI – The Yield Trap Dressed in Armani

Now let’s talk about SPYI. It’s the flashy neighbor who pulls into the driveway with a leased Lamborghini while living in a house with peeling paint. SPYI sells itself as a high-income ETF tied to the S&P 500, but with an options overlay that “boosts yield.” What it really does is siphon off upside in exchange for eye-catching monthly payouts.

Expense ratio? A chunky 0.68%. Distribution yield? On paper, around 11-12%, which makes income investors drool like golden retrievers. Actual returns? Consistently lagging plain-vanilla S&P 500 ETFs like VOO.

So, VOO gives you steak. SPYI gives you sizzle, then sends you the bill.

Section 2: The Income Investor Mindset

Let’s address the psychology. Income investors love distributions. They’ll tell you, “I don’t care about price appreciation—I want cash flow.” Which is noble. Except, when you dig deeper, half the time those “distributions” are just return of capital. It’s not “income.” It’s your own money coming back with a mustache drawn on it.

Imagine withdrawing $100 from your checking account, handing it to yourself, and shouting, “Look at this passive income I generated!” That’s SPYI. Investors know this, on some level, but the dopamine hit from seeing monthly checks blinds them to the underperformance slowly eating away their long-term wealth.

Section 3: The Cost of Yield-Chasing

Yield-chasing is like drunk texting: it feels good in the moment, but you’ll regret it when you see the long-term consequences.

VOO 10-year annualized return: ~12% (give or take depending on market cycles).
SPYI since inception annualized return: Lower. Much lower. Why? Because covered call strategies cap your upside in exchange for short-term cash flow.

SPYI thrives when the market goes sideways. But when the market rips higher—as it has been doing—SPYI lags so hard it looks like it’s running with ankle weights. Income investors console themselves with their monthly payouts, not realizing their portfolios are growing at half the speed of a simple S&P 500 tracker.

In other words, SPYI is basically handing you a cupcake every month while stealing your wedding cake.

Section 4: Why People Pay to Underperform

If investors are rational, why do they flock to SPYI? Because investors aren’t rational. They’re human. And humans love:

The Illusion of Control. Monthly cash flow feels like control, even when it’s a financial illusion.
The Lottery Ticket Fantasy. Seeing “11% yield” tricks people into thinking they’ve outsmarted Wall Street.
Psychological Anchors. Retirees are conditioned to think in terms of “income streams,” not total return.
Marketing. Oh, the marketing. SPYI’s pitch deck is sexier than VOO’s entire existence.

VOO is math. SPYI is psychology. And psychology wins wallets every time.

Section 5: The Real Math Behind the Curtain

Let’s break this down.

SPYI writes covered calls on the S&P 500. This generates option premium, which is distributed as “income.”
That premium looks juicy, but it comes at the cost of capped upside.
Over long periods, the stock market’s growth (VOO) outpaces the incremental income from options (SPYI).

So yes, you’re “earning” that 11% yield. But your total return—the number that actually matters—gets kneecapped. You don’t notice until you compare your portfolio to your buddy who just sat in boring VOO and smoked you over a decade.

Section 6: The Retirement Trap

Retirees are SPYI’s bread and butter. They want predictable income to fund their golden years. And fair enough—cash flow matters when you’re not working. But here’s the trap:

You can create your own “income” from VOO by selling shares.
The tax treatment of capital gains is often better than ordinary income.
VOO grows faster, so you have more to draw from in the long run.

In short: by clinging to SPYI’s artificial monthly yield, retirees may actually shortchange their own retirement security. It’s like demanding to be paid weekly in Monopoly money because it “feels more reliable.”

Section 7: The Fees, Oh God the Fees

Let’s talk fees.

VOO’s expense ratio: 0.03%. That’s 3 cents on every $100. Practically free.
SPYI’s expense ratio: 0.68%. That’s 68 cents on every $100.

That difference compounds. Over 30 years, the extra fees on SPYI can devour tens of thousands of dollars. And for what? For underperformance. You’re literally paying more to get less.

Section 8: Historical Lessons From Yield Traps

We’ve seen this movie before. Remember MLPs in the mid-2000s? Remember high-yield closed-end funds? Remember mortgage REITs? All of them wooed investors with double-digit yields. All of them underperformed broad-market trackers in the long run.

SPYI isn’t new. It’s just the latest iteration of Wall Street monetizing investor psychology. The lesson never changes: the yield you see isn’t the return you get.

Section 9: The Boglehead Smirk

Somewhere in the afterlife, Jack Bogle is sipping a cheap domestic beer, laughing at all this. His entire philosophy was “keep costs low, buy the whole market, and stop being greedy.” VOO is the embodiment of that. SPYI is the anti-Bogle—high fees, complex structures, marketed yield.

And the kicker? Income investors paying to underperform will still insist they’re smarter than “index sheep.” Meanwhile, their sheep friends are wealthier.

Section 10: The Final Nail

Here’s the ultimate irony: if you’re young, you don’t need SPYI because growth matters more. If you’re old, you don’t need SPYI because you can sell shares of VOO. So who, exactly, needs SPYI? Nobody. It exists to exploit a psychological quirk, not to maximize investor returns.

Section 11: Snarky Analogies to Drive It Home

VOO is like drinking water. SPYI is like chugging Red Bull. Feels good now, crashes later.
VOO is Netflix. SPYI is Blockbuster with a monthly subscription fee.
VOO is driving a Toyota Corolla 300,000 miles. SPYI is leasing a Maserati and wondering why you’re broke.

Section 12: What Income Investors Should Do Instead

If you really want income without sabotaging yourself, consider:

Dividend growth ETFs (SCHD, VIG).
Building your own withdrawal strategy with VOO.
Mixing bonds with equities to create natural yield.

Literally anything but paying 20x the fees to underperform the S&P 500.

Conclusion: Stop Paying to Underperform

VOO is boring, cheap, and effective. SPYI is flashy, expensive, and ultimately disappointing. Income investors love SPYI because it scratches a psychological itch. But that itch costs them dearly in long-term returns.

So ask yourself: do you want the illusion of yield, or do you want actual wealth? Because in the end, paying to underperform is less an investment strategy and more a personality flaw.