What is the Russel 2000 Index?

How to Trade the Russel 2000 Index

The Russel 2000 Index can be traded through ETFs, stocks, and futures. You can also choose to use a broker to trade individual stocks from the index. When trading ETFs, be sure to check the holding companies to make sure they are part of the index. You can also look up the information on the SEC website. When trading stocks, make sure they are part of the Russell 2000 Index and not the Russell 1000 Index. The Russell 1000 Index is made up of larger capitalization stocks. Futures contracts can be traded on the Chicago Mercantile Exchange (CME).

Russell 2000 Index Fundamentals

The Russell 2000 Index is an equity index that tracks the performance of the bottom two-thirds of the Russell 3000 Index, which is composed of the 3,000 largest companies whose stock is listed on American stock exchanges. The Russell 2000 Index represents approximately 98% of the total market capitalization of the Russell 3000 Index. The Russell 2000 Index was created in 1978. Its initial name was the S&P Micro-Cap Index, and it was created as a spin-off of the original S&P 500 Index. The S&P 500 Index tracks the performance of the largest 500 publicly listed companies whose stocks are traded on the New York Stock Exchange (NYSE) and the NASDAQ. The Russell 3000 Index is named after the investment analytics firm Russell Investments, which created the index in 1975.

Russell 2000 Index Investments

There are several ways that you can invest in the Russel 2000 Index. Some of the more popular ways include investing in the Vanguard Russell 2000 ETF, investing in a Russell 2000 Index fund, and investing in individual stocks from the index. Vanguard Russell 2000 ETF - The Vanguard Russell 2000 ETF invests in small-cap stocks that are part of the index. It currently has more than $20 billion in assets, and it charges an expense ratio of just 0.09%. Russell 2000 Index Fund - You can also choose to invest in a Russell 2000 Index fund, which is managed by an investment manager. Invest in Individual Stocks - You can also choose to invest in individual stocks from the index. This can be a higher-risk investment because you will have to do your research on these stocks to make sure they are good investments.

Pros of Investing in the Russel 2000 Index

Low Cost - The first advantage of investing in the Russel 2000 Index is that it is a low-cost investment. Many of these index funds charge very low expense ratios, which will reduce your costs. Low Risk - Another advantage of investing in the Russel 2000 Index is that it is a lower-risk investment. Small-cap stocks are typically less risky than large-cap stocks. Wide Diversification - The Russel 2000 Index offers wide diversification. There are more than 2,000 stocks in the index, which means you will have a more diversified portfolio and will be protected against losing money in a few stocks.

Cons of Investing in the Russel 2000 Index

Higher Volatility - The first disadvantage of investing in the Russell 2000 Index is that it is a more volatile index. This means that the stocks will be more likely to experience significant price changes.

Less Liquidity - Another disadvantage of investing in the Russel 2000 Index is that it has less liquidity. This means that it will be difficult to sell your stocks quickly if you need to access your money.

Less Growth Potential - The Russel 2000 Index has less growth potential than the Russell 1000 Index, which includes larger capitalization stocks. This means that it will be more difficult for the index to experience significant growth.

Less Diversification - Yet another disadvantage of investing in the Russell 2000 Index is that it offers less diversification than the Russell 1000 Index. This means that you will be less protected against losing money in a few stocks.

Conclusion

The Russel 2000 Index is an index of small-cap stocks that can be an excellent way to build a diversified portfolio. It is a low-cost investment and has lower risk than large-cap stocks. However, it also has less growth potential and less liquidity than its larger counterpart. If you are interested in investing in the Russel 2000 Index, there are several different options available to you. You can invest in an ETF, a fund, or individual stocks from the index.