There are an infinite number of ways for someone to invest their money. You can be conservative, aggressive, or somewhere in between. And within each of those options there are an infinite number of ways to invest. But there are a few big indices out there that are really common for investors to track. They are the Dow Jones Industrial Average, the S&P 500, the NASDAQ, and the Russell 2000. Let’s go over the Russell 2000 today.
What is the Russell 2000?
The Russell 2000 is one of the major indices in the stock market. Just like the DJIA, the S&P 500, and the NASDAQ. However, it covers a different breadth of companies.
This index covers mainly smaller publicly traded companies. A lot of them you probably have never heard of.
This index is widely considered the best benchmark for a small cap portfolio. What does that mean though?
Speaking broadly, if you invest in a large company (large cap company), you have made a relatively safe investment. After all, do you really think that Walmart, Amazon, Microsoft, Target, etc. will go out of business?
If you invest in a medium sized company (mid cap company), there is a little more risk with that investment. This is basically because the company is not as big or established. It is probably still a pretty good investment, just a little more risky than a large company investment.
If you invest in a small sized company (small cap company) then there is a higher risk that that company could go out of business. But there is a higher chance that that company could go to the moon and make you tons of money. (In other words, this investment is more volatile.)
The Russell 2000 is made up of about 2000 small cap companies.
So if you decide that you want to invest money and are okay with the stock prices going way way up and way down at times, then the Russell 2000 might be the place for you to go.
Here is how it looks (broadly speaking):
As a general rule, if you want to have a bigger return on your investment, you will have to take on more risk. That is just the nature of the beast. There is no investment out there that will give you a huge reward for very little risk.
If there were, everyone would already be doing it.
So if you are looking for an investment that can give you a higher return, but you also take on a higher risk, then a Russell 2000 ETF or index fund might be the way for you to do it.
Final Thoughts
I am not here to give personalized financial advice. But with that being said, having some investment exposure to small cap companies (like the Russell 2000) is a good flavor to have in your investing portfolio for most people.
Don’t be afraid of the higher risk with the Russell 2000. Just make sure that you can stomach it and ride out the ups and downs.
You can do this!
I am here for you!
Until next time!
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