What is the average return of small-cap index funds?

From 1972 to 2022, small-cap funds averaged a total annual return of 11.5%, slightly better than the return on large-cap funds.

What is the minimum investment in small cap index?

Minimum investment thresholds vary by company, but many offer small-cap indexes with no minimum investment required.

What is the difference between small-cap and large-cap index funds?

As the name implies, small-cap and large-cap funds differ in the size of the companies they buy. Small-cap funds invest exclusively in companies that have relatively small market capitalizations, while large-cap funds invest only in companies with large market capitalizations. The definition of "small" and "large" varies by company, but small-cap stocks generally are companies with a market capitalization between $300 million and $2 billion.

Do small caps outperform the S&P 500?

Over long periods, small-cap stock indexes tend to outperform the S&P 500, but returns can vary. Over some periods, the S&P 500 has outperformed small caps by a significant margin.

How are small-cap index funds taxed?

Small-cap index funds are taxed on dividends and capital gains distributions, which are either short-term or long-term, depending on an investor's holding period and a fund's holding period for individual investments. Funds held in tax-sheltered accounts, including retirement accounts, are not subject to annual taxation.

Who should invest in a small-cap index fund?

Investors with a long-term horizon who are seeking diversification away from the large stocks that dominate the major indexes might consider a small-cap index fund. Risk-averse or short-term investors might want to limit or avoid small caps as they tend to be more volatile.

Best Small-Cap Index Stocks for 2026 and How to Invest

Make small-cap investing easy.

By Matthew Frankel, CFP – Updated Apr 24, 2026 at 9:46 AM EST | Fact-checked by Frank Bass

Key Points

Small-cap index funds provide diversified exposure, outperforming large caps in bull markets.
Funds like iShares Russell 2000 Growth ETF and Schwab U.S. Small-Cap ETF offer low expense ratios.
Vanguard Small-Cap Value ETF is safer in bear markets with a 2% dividend yield and 0.05% expense ratio.

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Ticker Information Table
Name and ticker	Market cap	Dividend yield	Industry
iShares Trust - iShares Russell 2000 Growth ETF (NYSEMKT:IWO)	$0.0 thousand	0.00%	Capital Markets
iShares Core S&P Small-Cap ETF (NYSEMKT:IJR)	$0.0 thousand	0.00%	Capital Markets
Schwab Strategic Trust - Schwab U.s. Small-Cap ETF (NYSEMKT:SCHA)	$0.0 thousand	0.00%	Capital Markets
Vanguard Small-Cap Value ETF (NYSEMKT:VBR)	$0.0 thousand	0.00%	Capital Markets

Data as of May 15, 2026. Showing 4 of 4 tickers.

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NYSEMKT: IWO

iShares Trust - iShares Russell 2000 Growth ETF

Today's Change

(-2.68%) $-9.98

Current Price

$362.26

Key Data Points

Day's Range

$361.80 - $365.76

52wk Range

$262.24 - $375.69

Volume

79K

As its name implies, the iShares Russell 2000 Growth ETF aims to track Russell 2000 stocks that exhibit growth characteristics.

This ETF has performed well in bull markets but also falls faster when stocks are down. It is at its best when investors are putting money into smaller, more speculative companies. As the fund's name suggests, it is focused on growth: It aims to provide exposure to small companies with earnings expected to grow at an above-average rate relative to the market.

A growth-oriented fund such as the iShares Russell 2000 Growth ETF carries greater inherent risk, but it offers a reasonable expense ratio of 0.24% for investors seeking small-cap growth.

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2. Schwab U.S. Small-Cap ETF

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NYSEMKT: SCHA

Schwab Strategic Trust - Schwab U.s. Small-Cap ETF

Today's Change

(-1.87%) $-0.62

Current Price

$32.53

Key Data Points

Day's Range

$32.50 - $32.77

52wk Range

$23.55 - $33.66

Volume

453K

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The Schwab U.S. Small-Cap ETF tracks the small-cap holdings of the Dow Jones U.S. Total Stock Market index. This is sort of a middle-of-the-road index fund ETF. It is neither overly conservative nor too aggressive with its holdings. Since it holds a mix of high- and low-risk stocks, its risk is lower than that of a purely growth-oriented fund. If you're a believer in diversification, this fund provides it.

A low expense ratio of 0.04% and a 10-year compound annual growth rate of more than 10.5% (including dividends) makes the ETF an appealing way to invest in domestic small caps. The fund also pays a dividend yielding about 1.26% of the share price as of Spring 2026.

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NYSEMKT: IJR

iShares Core S&P Small-Cap ETF

Today's Change

(-1.48%) $-2.01

Current Price

$134.13

Key Data Points

Day's Range

$133.84 - $135.09

52wk Range

$102.57 - $139.49

Volume

1.6M

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The iShares Core S&P Small-Cap ETF, with $101 billion in assets, is the biggest small-cap index fund on the market. The fund seeks to track the S&P Small Cap 600 index by holding a broad array of stocks, including Mueller Industries (MLI -2.06%) and Comerica (NYSE:CMA).

Over the past decade, the index has generated an annual return of about 10.5% with dividends. It has an expense ratio of 0.06% and offers a dividend yield of about 1.3%.

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Exchange-Traded Fund (ETF)

An exchange-traded fund, or ETF, allows investors to buy many stocks or bonds at once.

4. Vanguard Small-Cap Value Index ETF

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NYSEMKT: VBR

Vanguard Small-Cap Value ETF

Today's Change

(-1.44%) $-3.32

Current Price

$227.63

Key Data Points

Day's Range

$227.29 - $229.59

52wk Range

$184.56 - $235.68

Volume

1.6K

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The Vanguard Small-Cap Value Index Fund ETF tracks the CRSP U.S. Small Cap Value index. As a value-oriented index tracking fund, the ETF doesn't offer the highest share price growth potential, but it should outperform in bear markets. That's because valuations, especially of high-priced stocks, tend to compress in recessions.

Investors need to be clear about the trade-offs they are making when considering a value fund. This and other value-oriented investments tend to underperform when markets are soaring, but can provide valuable ballast when markets are under pressure.

Currently, the fund offers a dividend yield of about 2% and an attractive expense ratio of 0.05%.

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Small-cap index funds FAQ

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About the Author

Matt Frankel, CFP, is a contributing Motley Fool stock market analyst specializing in the real estate and financial sectors. Prior to The Motley Fool, Matt taught high school and college mathematics. He holds a bachelor’s degree in physics from the University of South Carolina, a master’s degree in mathematics from Nova Southeastern University, and a graduate certificate in financial planning from Florida State University. He won a SABEW award for coverage of the 2017 Tax Cuts and Jobs Act. He is also regularly interviewed by Cheddar, Globe St, The National Desk, and other TV networks and publications for his real estate, financial, stock market, and investing expertise.

TMFMattFrankel

@MattFrankelCFP

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Mueller Industries and iShares Core S&P Small-Cap ETF. The Motley Fool has a disclosure policy.

Best Small-Cap Index Stocks for 2026 and How to Invest

Make small-cap investing easy.

Key Points

Key Data Points

2. Schwab U.S. Small-Cap ETF

Key Data Points

Key Data Points

4. Vanguard Small-Cap Value Index ETF

Key Data Points

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Small-cap index funds FAQ

What is the average return of small-cap index funds?

What is the minimum investment in small cap index?

What is the difference between small-cap and large-cap index funds?

Do small caps outperform the S&P 500?

How are small-cap index funds taxed?

Who should invest in a small-cap index fund?

1. iShares Russell 2000 Growth ETF

2. Schwab U.S. Small-Cap ETF

3. iShares Core S&P Small-Cap ETF

4. Vanguard Small-Cap Value Index ETF

How to buy small-cap index funds

Benefits and risks of investing in small-cap index funds

Should you invest in small-cap index funds?

Related investment topics

FAQ

X top small-cap index funds for 2026

Key Data Points

Key Data Points

Key Data Points