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Here’s a Smart Way to Beat the U.S. Stock Market — Plus 10 ETFs to Get You There

For years, the advice has been simple: “Just buy the S&P 500 and hold on.” And yeah, it’s worked pretty well. But let’s be honest—lots of folks want more than just average returns. They want to beat the market, or at least get close. The question is, how do you do that without gambling on penny stocks or chasing every new meme craze?

One strategy worth knowing about is factor investing. Thanks to ETFs, it’s easier than ever to put this into practice. I’ve seen how it can give you an edge, but it’s not some magic bullet — it’s really about stacking small advantages that add up over time.

What’s Factor Investing, Really?

Let’s skip the jargon. Factor investing means leaning into specific stock traits that have historically delivered better returns. These traits, or “factors,” include things like:

• Value: Buying cheaper stocks.
• Momentum: Going with stocks that are already winning.
• Quality: Companies with strong balance sheets and stable earnings.
• Low Volatility: Stocks that don’t swing wildly.
• Size: Smaller companies that can grow faster.

This isn’t a new idea. The academics Eugene Fama and Kenneth French laid the groundwork decades ago, showing that value and size can beat the market over time. Others later added momentum and quality to the mix. The tricky part? Many pros jump on these factors after they’ve already done well — and timing the market is notoriously hard.

Why ETFs Make This Approach So Accessible

You don’t need a finance degree or piles of cash. Nowadays, plenty of ETFs handle all the heavy lifting — they screen stocks, rebalance, and trade automatically. Plus, fees have dropped so low that tilting your portfolio toward these factors costs almost the same as just buying an S&P 500 fund.

I’ve seen people build portfolios with just a few of these ETFs and outperform plain index funds. The tools are out there, but the trick is knowing which ones to pick and avoiding the temptation to go overboard.

Can You Really Beat the Market?

The data looks good. Factors like value and momentum have beaten the market over long stretches, and they often move opposite the broader market at key times. That’s a huge plus for managing risk.

But here’s the catch: factors don’t win every year. They can lag for long periods — sometimes several years. That’s when patience is your best friend. I’ve seen investors quit right before a factor makes a big comeback, and that’s a costly mistake.

A Practical Starting Point: 10 ETFs to Know

Enough theory — let’s get practical. Here are 10 ETFs I’ve seen deliver solid results. You don’t need all of them, but it’s good to know what’s out there:

1. iShares Edge MSCI USA Value Factor ETF (VLUE): Focuses on U.S. stocks that look undervalued. A solid choice if you want a value tilt.
2. Invesco S&P 500 Pure Value ETF (RPV): Goes after the most undervalued names in the S&P 500, a bit more aggressive on value.
3. iShares Edge MSCI USA Momentum Factor ETF (MTUM): Tracks stocks with strong recent performance — momentum can really boost returns in good markets.
4. SPDR S&P 600 Small Cap Value ETF (SLYV): Combines small company exposure with value — a classic factor combo that’s worked historically.
5. Vanguard Small-Cap Growth ETF (VBK): If you want small size but with a growth focus instead of value.
6. iShares MSCI USA Quality Factor ETF (QUAL): Picks companies with strong returns on equity and steady profits.
7. Invesco S&P 500 Low Volatility ETF (SPLV): Focuses on the calmest stocks in the S&P 500, which tend to hold up better when markets get rough.
8. First Trust Dorsey Wright Focus 5 ETF (FV): Uses momentum to rotate between sectors — works well when markets are trending up.
9. VictoryShares US Multi-Factor Minimum Volatility ETF (VSMV): Combines value, quality, momentum, and low volatility in one fund.
10. JPMorgan Diversified Return US Equity ETF (JPUS): Another multi-factor ETF with a smart weighting strategy.

You can mix and match based on your risk tolerance and goals. No need to complicate things — sometimes less is more.

What Factor Investing Won’t Do

Here’s the reality check: factor investing won’t shield you from bear markets. When the whole market falls, value, momentum, and quality stocks usually drop too — sometimes even more than the index. I’ve seen people load up on a factor, only to watch it underperform for years. That’s when your patience really gets tested.

Also, these strategies are based on history. Just because value outperformed for decades doesn’t guarantee it’ll keep doing so. Markets evolve, and when everyone catches on to a factor, its advantage can shrink. So don’t expect winning every year — it’s more about playing the long game.

Why Most People Fall Short

Even with the right ETFs, the biggest hurdle is sticking with the plan. Sitting through years of underperformance is tough. I’ve seen investors give up on value in 2018, only to see it come roaring back after 2020. It’s normal to feel frustrated, but having a long-term mindset is key.

If you want to try factor ETFs, commit to a multi-year timeline and be ready to feel a little uncomfortable. That short-term pain is often the price you pay for long-term gains.

When Factor Investing Might Not Be Right for You

If you need your money soon, or if you panic and sell whenever things lag, this probably isn’t your thing. Also, if your portfolio is really small, even cheap trading fees can eat into your returns, and sometimes a simple broad market fund is just easier.

One more thing: factor ETFs tend to rebalance more often, which can generate taxable events. If you’re investing in a taxable account, that might mean a bigger tax bill than expected. Tax-advantaged accounts like IRAs or 401(k)s are a better home for these strategies.

Wrapping It Up: Smart Choices Over Luck

Beating the market isn’t easy, but it’s not impossible either. Factor investing through ETFs gives you a real shot — as long as you keep costs low, resist chasing fads, and have the discipline to stick it out through the rough patches.

ETFs aren’t a silver bullet; they’re tools. Use them thoughtfully, focus on the long haul, and remember: markets don’t care what you think they “should” do next. That’s what makes beating them so rewarding — when it actually happens.

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