How to Invest in Russell 2000 Index | Investment strategy | Why to Invest in Russell 2000| - YouTube

In US Stock market, SP500 and DOW Jones are in all time high. Nasdaq is down 5% from its all time high.

These three are major indexes in US and it has companies such as Apple, Amazon and Tesla.

There is another index called Russell 2000 but not many are aware of it.

I have invested in this index and made reasonable profits.

In this video, we are going to look at What is Russell 2000, what are the companies in this index, why and how to invest in this index,

and what is its performance and how did it perform against other indexes in last 5 yrs.

Mostly my videos will only avg around 200 views but a video i made 4 months ago - how to invest in US from India, actually crossed 1000 views last week.

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I am Kaarti, Welcome to Thuttu Money Money.

What is a Russell 2000 Index - It is an index that holds US small cap companies.

That is, it holds companies that are less than $500Million in market capitalization.

Similar to Russell 2000, there is another index called Russell 3000. In ranking 3000 companies, 1001st to 3000th company will be added to Russell 2000.

We can think of Russell 3000 as a parent and Russell 2000 is a subset of Russell 3000.

When comparing Russell 2000 with SP 500. SP500 holds US's top 500 companies.

Russell 2000 will hold small cap companies and SP500 will hold Large cap companies.

For example, apple which is a sp500 company and it's market cap is $2.03T.

Tesla another SP500 company and it's market cap is $666.62B. Russell 2000's market cap will be around $500Million.

Russell 2000 index was formed recently in 1984 whereas SP500 has been around for more than 100 yrs.

Russell 2000 is currently being managed by FTSE Russell, a British management firm.

Generally if a stock market is up, it doesnt mean US economy is good. we saw that last year. Due to pandemic, stock market was up even when the economy was down.

But whenever you see this index doing well, it also means US economy doing well.

Because, since this holds small cap companies and includes sectors such as housing, finance, Retail and small tech companies.

These forms the backbone of the US economy and also these companies dont usually have international exposure and are only focused on US market.

so whenever these companies do well, US economy is also doing well.

In the next section, lets look at why we should invest in this index.

First and foremost is the Index performance. Last five years, they have increase to 116%.

Last 2 yrs, 51%, last 1 yr 81% increase.

We cant expect Tesla type returns but according to me, these are really good returns.

Lets quickly compare Russell 2000 with other indexes - SP500, Dow Jones and Nasdaq.

Year to Date, 2021. Russell is leading with 19%, second is DoW jones in green with 6.1%,

Sp500 is third with 5.3% and Nasdaq is at 4th with 4% positive returns.

You are now looking at 1 yr chart and even here Russell 2000 is leading, with Nasdaq second, Sp500 third and Dow Jones in 4th place.

Only when looking at a 5yr performance, Nasdaq is leading with Russell 2000 second, SP500 third and Dow Jones being 4th.

These are past returns, this doesnt mean future returns will be the same but want to share these chats with you for comparison.

Second reason to invest is, you can invest early on these small cap companies as they have opportunity to grow big.

If we are able to identify these companies early, we can increase our investments long term.

Third reason, these small cap companies can grow faster as well. this doesnt apply to every small cap companies, but the ones with good business and management can quickly grow.

Thats because, being a small company, they can double their revenue and growth compare to being a larger company.

Lastly, you have an exposure to different assets, you have an option to invest in small cap companies along with large cap companies.

Therefore you can maintain your account diversified.

We saw the positives, lets quickly look at the negatives. first negative is, not many will know about these companies.

In next section, i will show you the list of companies, you will see for it yourself. Also there will not be much news articles or research materials on these companies.

This will make our investing decision difficult.

Second negative is, it has a higher risk. when investing in larger companies, you can be comfortable to invest since you have many research articles and financials are easily available.

Also if they do require additional bank loans, they can easily get funding. so it is less riskier to invest in large cap companies.

But when investing in small cap companies, there is not much research materials.

And if they have any financial issues, it is difficult for them to get fund, so it is difficult for them to return from any major loss.

So investing on these type of companies can be riskier.

In the next section, we are going to look at the companies in this index and how to invest.

Here are the companies that are part of Russell 2000, we are not going to look at all 2000 companies, if you would like a copy of this spreadsheet, do comment. will send it to you.

I have heard about PENN, PLUG, GME and NVAX.

If you look at this list, there are lot of unknown companies but that doesnt mean they are bad companies.

If you any these companies, you can surely invest in these companies after looking the companies financials.

Column E is Market value for these companies, $515M, $484M.

You can invest in any of these companies easily using any brokerage simply by searching the stock symbol.

Before investing, look at their business model, financials - Income statement, balance sheet and cash flow.

Also look for the companies future growth prospect and then invest in these companies.

If you think, you dont have time, cant research, think its riskier to invest in a single company, then you can actually invest in all 2000 companies as a Single ETF.

I have talked in detail about ETF on how to invest your first $1000, if you havent see that video click the banner above or check the video description for the link to the video.

In short, think ETF is like a basket of multiple stocks and it tracks an index, in this case, it tracks a Russell 2000 index.

This ETF will perform similar to the Russell 2000 Index. if you invest $100 or $1000, the amount will be split and invested in all 2000 companies.

So your invest is not based on just one company but 2000 companies.

There are two popular ETFs that track this index - IWM and VTWO.

IWM is Blackrock ishares and VTWO is Vangaurd.

IWM has little higher fees, .19% but it has high trading volume.

IWM has a daily volume of $5.85B but VTWO only has $75M

Performance is also the same. In this chart i have compared Russell 2000 Index, IWM and VTWO. there is not much difference.

You can definitely invest in either one of the ETFs, check your brokerage account and invest in the ETF that doesnt charge you a commission fees.

Hopefully this video was useful. If you add either a small cap company or small cap index ETF, you can diversify your account. Please do comment your feedback.

If you like the video, give a thumbs up, please do subscribe and share. Until i see you next time, be safe, keep smiling thank you