While the Dow Jones Industrial Average (^DJI +0.73%) and S&P 500 (^GSPC +0.81%) get most of the headline attention, investors need to understand that there are many different stock indexes. Among the most popular indexes, one Russell 2000 index, which doesn't track large companies, is widely considered the benchmark for smaller U.S. stocks.
With that in mind, here's a rundown of what investors should know about the Russell 2000 index, how it works, and whether it could be a smart investment choice.
What is the Russell 2000 index?
The Russell 2000 index, sometimes abbreviated Russell 2K, is the most widely used index of small-cap stocks, or those with a relatively small market capitalization. There are no hard-and-fast rules for when a stock is a small cap.
The key point here is that there's a broad market index known as the Russell 3000. It is divided into two smaller indexes: the Russell 1000, which comprises the 1,000 largest companies, and the Russell 2000, which comprises the remaining two-thirds.
The largest company in the Russell 2000 has a market cap of roughly $80.6 billion; the average market cap of companies in the index is roughly $4.5 billion.
The Russell 2000 is a market-cap-weighted index, as are most popular stock indexes -- the Dow Jones Industrial Average being the main exception. This means that the 2,000 companies that comprise the index don't contribute equally to its performance. Larger companies have a proportionally greater impact than smaller ones.
How does the Russell 2000 index work?
The Russell 2000 is designed to provide the best indicator of the performance of small-cap U.S. stocks. To keep up to date on these stocks, the Russell 2000 is reconstituted annually to ensure that the companies in it represent the small-cap universe.
In simple terms, if a company grows too large, it will be removed from the Russell 2000. In turn, it will likely be placed in the Russell 1000, which is designed to be a barometer of large-cap stocks' performance.
For example, GameStop (GME +1.64%) was added to the Russell 1000 in the 2021 reconstitution and removed from the Russell 2000 after its price soared during the meme stock craze. In all, 236 companies were added to the Russell 1000 in June 2025, with 173 moving from the Russell 2000.
How the Russell 2000 compares to other major stock indexes
There are many important stock indexes, each focusing on a different basket of stocks. Here are some of the most common:
- Dow Jones Industrial Average: The Dow, the best-known stock index in the U.S., includes 30 of the largest publicly traded companies. Unlike most indexes, the Dow is price-weighted, meaning stocks with higher share prices contribute more to the index's performance.
- S&P 500: This one includes 500 large U.S. public U.S. companies. Note that they aren't necessarily the largest 500.
- S&P MidCap 400: This index comprises 400 public U.S. companies with market capitalizations between $8 billion and $22.7 billion.
- S&P SmallCap 600: This index includes 600 public U.S. companies with market capitalizations of between $1.2 billion and $8 billion. The S&P 500, S&P MidCap 400, and S&P SmallCap 600 are collectively known as the S&P Composite 1500 index.
- Nasdaq Composite: This index includes all the companies traded on the Nasdaq exchange.
- Nasdaq-100: The Nasdaq-100 index includes 100 of the largest Nasdaq-listed companies and is widely considered a barometer for tech stock performance.
- Russell 1000: This comprises the 1,000 largest public U.S. companies. The Russell 1000 and Russell 2000, collectively known as the Russell 3000, are regarded as one of the best barometers of the overall U.S. stock market's performance.
How the Russell 2000 is different
So, what makes the Russell 2000 different from the rest?
- Smaller and more volatile companies: The stocks in the Russell 2000 are smaller and more volatile than those in "headline" indexes such as the S&P 500. Many are newer growth companies and tend to be more volatile than their larger counterparts. In other words, don't be surprised if the Russell 2000 experiences more dramatic swings than large-cap indexes.
- Higher growth potential: While they tend to be more volatile, smaller-cap stocks often offer much greater growth potential than larger companies. Think of it this way: It would be far more difficult for Apple (AAPL +2.66%) to double in size than for a newer tech company with a $1 billion market cap. So, while their price swings tend to be more dramatic over long periods, small-cap stocks typically outperform large-cap stocks.
- More diversified: Because it focuses on smaller companies and contains 2,000 of them, the Russell 2000 is more diversified than other popular indexes such as the S&P 500. For one thing, it is less top-heavy and less dependent on the performance of just a few large companies. The median market cap of a Russell 2000 stock was $840 million as of May 31, 2025.
Russell 2000 by industry
Industry | Percentage of Index |
|---|---|
Industrials | 19.0% |
Healthcare | 17.7% |
Financials | 16.5% |
Technology | 11.3% |
Consumer Discretionary | 10.3% |
Energy | 7.1% |
Real Estate | 5.6% |
Basic Materials | 4.6% |
Utilities | 3.4% |
Telecommunications | 2.7% |
Consumer Staples | 1.6% |
Small-cap subindexes in the Russell 2000
Although designed as a barometer of small-cap stocks, some subindexes include Russell 2000 stocks. For example, the Russell 2000 Growth Index is designed to gauge how small-cap growth stocks are performing. About 1,100 stocks out of the broader Russell 2000 qualify for the growth subindex, with the technology and healthcare sectors making up the largest contributions.
Conversely, the Russell 2000 value index comprises hundreds of value stocks from the index. It's also worth noting that many Russell 2000 stocks are included in both subindexes. As of May 2026, about 1,430 stocks were in the Vanguard Russell 2000 Value ETF (VTWV +1.55%) and about 1,125 in the Vanguard Russell 2000 Growth ETF (VTWG +1.99%).
Exchange-Traded Fund (ETF)
How to invest in the Russell 2000 index fund
If you want to invest in the Russell 2000 index, you don't need to buy all 2,000 stocks. You can invest in the index easily through a mutual fund or an exchange-traded fund (ETF) that tracks it passively.
One good example is the Vanguard Russell 2000 ETF (VTWO +1.71%), which invests in all the stocks in the index according to their relative weights. With a small (0.06%) expense ratio, the ETF's fees are low, and its long-term performance should be virtually identical to the index.
Is investing in the Russell 2000 index right for you?
Investing in the Russell 2000 is a great way to gain exposure to the exciting world of small-cap investing without relying too heavily on any single company. The index's broad diversification should help smooth the volatility of investing in smaller stocks while maintaining the potential for market-beating performance.
Related investing topics
FAQ
Russell 2000 stock market index FAQ
About the Author
