The Russell 2000 is an index of 2,000 smaller-company stocks.
This is a grouping of stocks with smaller market capitalizations, which likely will be more volatile than one composed of larger, older, more stable companies. However, the smaller companies are also the ones with more potential to grow your investment. How likely is it that Microsoft will quickly double its market cap and along with it your money? Not very. A smaller company, however, has room to grow.
The Russell 2000 index is a subset of the Russell 3000 Index, which measures the performance of the 3,000 largest U.S. companies, representing some 98% of the investable U.S. equities market. The Russell 1000 is the 1,000 largest stocks in the Russell 3000 Index and the Russell 2000 is ... the remaining 2,000, the "smallest," although not necessarily tiny micro-caps.
The average market cap of the stocks in the Russell 2000 was $823 million as of Jan. 31, 2009. The largest market cap in the group as of that date was $3.3 billion. The make-up of the Russell 2000 is reviewed annually to make sure it truly represents the small-cap universe of stocks.
Like all indexes, this one gives investors (1) a read on how the area it covers (small-caps stocks, in this case) is doing and (2) a way to invest in this area by easily buying shares of an exchange-traded fund that owns shares of all of the index's member stocks, instead of individually buying shares of all 2,000 stocks.
Russell Investments maintains many indexes that track the performance of various segments of the market. It has a separate microcap index.
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