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Why the S&P 500 Isn't a Set-It-And-Forget-It Benchmark

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  Published in Stocks and Investing on Thursday, December 18th 2025 at 2:34 GMT by The Motley Fool

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2 ETFs That Are Good Bets to Beat the S&P 500 in 20 Years – A Deep‑Dive Summary

In an era where the “market‑average” return is often taken for granted, The Motley Fool’s recent article, “2 ETFs That Are Good Bets to Beat the S&P 500 in 20 Years” (published 18 December 2025), turns the spotlight on two exchange‑traded funds that the authors believe can outpace the broader index over the long haul. The piece is written in the Fool’s trademark conversational style, peppered with charts, footnotes, and a few cautionary links that take readers to the ETFs’ own fact sheets, Morningstar analyses, and even a Bloomberg commentary on sector dynamics.

Below is a comprehensive walk‑through of the article’s core content, broken into the following sections:

1. Why the S&P 500 Isn’t a “Set‑It‑And‑Forget‑It” Benchmark
2. The Two Picked ETFs – an in‑depth look at each fund’s composition, strategy, and performance history
3. Risk & Reward, Fees & Diversification – a pragmatic assessment of what investors actually get in return for the higher expected upside
4. Key Take‑aways & Bottom‑Line Advice – actionable guidance for anyone looking to re‑think a passive portfolio

1. Why the S&P 500 Isn’t a “Set‑It‑And‑Forget‑It” Benchmark

The article opens with a brief primer on the S&P 500’s track record. According to the author, the index has returned an average of roughly 7–8 % annually over the last two decades, a figure that’s respectable yet unremarkable given the current market’s emphasis on high‑growth and niche sectors. The Fool’s editors point out that while a pure buy‑and‑hold index strategy has served well historically, investors who are looking to “beat the market” should consider a portfolio that is tilted toward sectors that exhibit stronger long‑term momentum.

The piece links to a Bloomberg article titled “How the S&P 500 Has Lived (and Died) Over the Past 20 Years” to provide readers with an analytical backdrop on sector‑level performance within the index. This external link is highlighted with a footnote that encourages investors to read the original source for a deeper understanding of why some sectors have outperformed while others lagged.

2. The Two Picked ETFs

2.1. ARK Innovation ETF (ARKK)

What is ARKK?
ARK Innovation is an actively managed ETF that focuses on “companies that stand to benefit from disruptive innovation.” The fund’s holdings range from electric‑vehicle (EV) makers and cloud‑computing firms to DNA‑sequencing and artificial‑intelligence (AI) start‑ups. As of the article’s publication date, ARKK had a concentration of roughly 10 % in Tesla, followed by a diversified set of 90+ other stocks across 11 sectors.

Why the article recommends it
Historical Upside: ARKK delivered a 23 % annualized return over the past five years, outpacing the S&P 500’s 14 % average during the same period.
Growth Potential: The author notes that the underlying themes—electric mobility, biotech breakthroughs, and AI—are projected to double in relevance over the next 20 years.
Active Management Advantage: Unlike a passive index, ARKK’s team actively rebalances to capture the next “innovative wave,” a feature the article says is “essential when aiming for 20‑year outperformance.”

Key Links & Data
- ARK Invest Fact Sheet: The article includes a link to ARKK’s official fact sheet, which details holdings, expense ratio (1.75 % as of 2025), and portfolio turnover.
- Morningstar Rating: A link to Morningstar’s 4‑star rating is provided, emphasizing the fund’s historical risk‑adjusted performance.
- Sector Exposure Chart: A visual breakdown of the top 10 holdings is embedded, offering readers an intuitive sense of how heavily the fund leans on EVs versus AI.

2.2. iShares Russell 2000 ETF (IWM)

What is IWM?
IWM tracks the Russell 2000 Index, a benchmark of small‑cap U.S. companies. While the index is known for its higher volatility compared to the S&P 500, it also offers greater upside potential, especially in a market that increasingly rewards innovation and niche expertise.

Why the article recommends it
Small‑Cap Momentum: The article cites research showing that small‑cap stocks have historically outperformed large‑cap stocks over long horizons, a pattern that has persisted even after adjusting for risk.
Diversified Exposure: IWM contains nearly 2,000 companies across all sectors, giving investors a broad, low‑cost way to capture the upside of the U.S. small‑cap universe.
Cost‑Effective Passive Management: With an expense ratio of just 0.20 %, the fund’s cost advantage is highlighted as a key driver of long‑term returns.

Key Links & Data
- iShares Fact Sheet: Direct link to IWM’s official fact sheet, which includes turnover rate (5.8 %) and the fund’s largest holdings.
- Bloomberg ETF Analysis: A link to a Bloomberg article titled “Small‑Cap Stocks: A Path to Higher Returns” is embedded to bolster the small‑cap argument.
- Historical Performance Graph: The article features a 10‑year performance graph that shows IWM’s cumulative returns relative to the S&P 500.

3. Risk & Reward, Fees & Diversification

The article doesn’t shy away from the fact that chasing higher returns often comes with higher risk. Two main categories of risk are discussed:

A side bar in the article compares the expense ratios (ARKK 1.75 % vs. IWM 0.20 %) and discusses the long‑term impact of fees on compounding growth. The author references a Morningstar study that suggests a 0.5 % difference in fees can translate into a 2–3 % difference in 20‑year returns.

4. Key Take‑aways & Bottom‑Line Advice

1. Blend Innovation with Breadth – Combining ARKK’s focus on disruptive tech with IWM’s diversified small‑cap exposure creates a portfolio that is both forward‑looking and broad‑based.
2. Monitor Expense Ratios – While ARKK’s higher fee is justified by its active management, a lower‑cost passive core (like IWM or a large‑cap index fund) can balance out long‑term costs.
3. Stay the Course – The article emphasizes the importance of a long‑term horizon. “Don’t get pulled into short‑term noise,” the author advises, linking to a Fool post on “Avoiding Market Timing Pitfalls.”
4. Re‑balance Periodically – Even a portfolio heavy on ARKK should be re‑balanced at least annually to prevent over‑exposure to any single sector or stock.

Final Thoughts

By weaving together data, sector analysis, and a candid discussion of risk, the Motley Fool article makes a compelling case that the combination of ARKK and IWM can deliver 20‑year returns that surpass the S&P 500’s historical average. The piece’s generous use of external links—spanning official ETF fact sheets, Morningstar ratings, and Bloomberg sector analyses—provides readers with a rich toolkit for further due diligence. Whether you’re a seasoned portfolio manager or a new investor looking to tilt your passive holdings, the article offers a clear, actionable roadmap to potentially beat the market over the next two decades.