What Is the Russell 2000? And Why Is It Important?

Before you go, we thought you'd like these...
Before you go close icon

In a new video series from The Motley Fool, we're tackling basic questions in the hopes of demystifying the investing world. In today's video (run time: 2:58), I break down the Russell 2000 index (RUSSELLINDICES: ^RUT), a widely followed benchmark of small-cap stocks that can be owned via the popular iShares Russell 2000 (ASE: IWM) exchange-traded fund. 

Unlike blue chip indexes such as the Dow Jones Industrial Average or S&P 500, the Russell 2000 isn't quoted every night on the news. But this index, which tracks the 2,000 smallest companies of the whole-market-tracking Russell 3000 index, is an important barometer of the American economy because it measures the performance of smaller, domestically focused businesses. The median market cap of a Russell 2000 component is less than $500 million, and unlike your typical Dow component, these firms aren't doing business in dozens of countries.

There's more. According to data from Ibbotson Associates, over the long term, small-cap stocks have outperformed large-cap stocks by about 2 percentage points per year, which adds up to a substantial difference over the years. For more on what the Russell 2000 is and why it's important, watch the video now:

At the time this article was published Fool.com managing editor Brian Richards holds no position in any company or ETF mentioned. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners