It doesn't take investing in a once-in-a-generation investment to make money in the stock market. Plenty of people have done so by investing in a handful of broad ETFs that take much of the thought out of investing. It doesn't get much attention, but the iShares Russell 2000 ETF (IWM +0.36%) has been quietly delivering impressive returns over the past decade.
Over that period, IWM's total returns (which include dividends) are 194%, meaning an investment would have nearly tripled. Had you invested $1,000 10 years ago, it would be worth $2,940 as of market close on July 2. And while past results are appreciated by those who were along for the ride, the good news is that momentum is still going, with IWM up over 19% this year -- far outpacing indexes like the S&P 500, Nasdaq-100, and Dow Jones Industrial Average.
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What you're getting when you invest in IWM
IWM tracks the Russell 2000 index, which is the primary index for small-cap stocks (similar to the S&P 500 for large-cap stocks). Small-cap stocks are typically defined as companies with market caps between $250 million and $2 billion, which is large by mom-and-pop standards, but it doesn't compare to the hundred-billion- and trillion-dollar market caps we see with the world's largest companies.
While many of IWM's 1,993 holdings are niche healthcare companies, regional banks, or young up-and-comers, it also holds some recognizable household names, such as Texas Roadhouse, Crocs, Planet Fitness, Dave & Buster's, and Abercrombie & Fitch, among others. The healthcare and financial sectors combine to account for over 39% of it.
NYSEMKT: IWM
Key Data Points
Investing in small-cap stocks is typically a trade-off between growth potential and stability. Their size usually leaves more room for growth opportunities, but they're also more sensitive to macroeconomic conditions. Take interest rates, for example. Because many smaller companies rely on debt to fund their operations, high interest rates have a much greater impact on their profits and ability to expand.
Is it worth investing in IWM right now?
Given their volatility, I wouldn't put the bulk of your portfolio in small-cap stocks, but the long-term growth appeal of small-cap stocks as a whole makes investing in a broad ETF like IWM worth it. It should be more of a complementary piece (less than 10% of your portfolio) in most cases, but it shouldn't be overlooked.
Only time will tell whether IWM will triple again in the next decade, but even if it doesn't, I imagine it will be productive in that time. And with major indexes like the S&P 500, Nasdaq, and Dow Jones becoming so tech-heavy, IWM is also a good way to balance out your portfolio a bit along the way.
