Eddie Ghabour, CEO of Key Advisors Wealth Management, anticipates market corrections this summer after a rapid surge in tech stocks, advising investors to prepare for choppy trading. look for buying opportunities.
When most people think of majorstock marketindexes. their minds go to the S&P 500, Nasdaq Composite, or Dow Jones because they're the "Big 3." One index that often flies under the radar is the Russell 2000, which tracks the smallest 2,000 companies in the Russell 3000 index.
The Russell 2000 is to small-capstockswhat the S&P 500 is to large-cap stocks,. so far this year, ETFs like the Vanguard Russell 2000 ETF have outperformed all of the "Big 3" indexes. If you have $1,000 available to invest, it could be a great addition to your portfolio for the long haul.
Investing in small-cap stocks – which are typically categorized as companies with market caps between $250 million. $2 billion – is generally a higher risk/reward trade-off than investing in larger companies.
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U.S. stocks hover near record highs, along with metals including silver and gold.(Michael M. Santiago/Getty Images / Getty Images)
On one hand, their small sizes usually mean they're more susceptible to broader market andeconomic conditions(like interest rates). are more volatile. On the other hand, their small size leaves much more room for growth. It doesn't always play out this way,. in theory, it's much easier to double a valuation from $500 million to $1 billion than from $500 billion to $1 trillion.
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Small cap doesn't always mean a new, start-up-like company, either. It can be a well-established company operating in a niche. In either case, VTWO gives you access to 1,957 small-cap stocks from every major sector. It's a true one-stop shop for small-cap stocks.
Through market close on June 5. VTWO is up 13.2%, marking one of its best starts to a year in a while. And although its gains this year are impressive, it's important to zoom out and look at longer-term performance as well. Here is how VTWO has performed over the years compared to the "Big 3" indexes:
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VTWO's underperformance over the years doesn't quite scream "invest in me," but its main goal is diversification. covering more ground, rather than having the bulk of your returns rely on a handful oftechgiants like the "Magnificent Seven" stocks.
I wouldn't make VTWO the bulk of your portfolio (aim for less than 10%),. having some exposure is a great way to tap into growth potential while also setting your portfolio up to have a winner during times when small-cap stocks usually outperform the market (like now). If you think big tech is due for a pullback. now is a good time to add some of the little guys to your portfolio.
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Stefon Walters has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has adisclosure policy.
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