Index Investing
The Russell 2000 Index (RUT)

The previous four indexes we covered were all based on the top companies in the U.S., most of them worth billions of dollars. The Russell 2000 measures the performance of smaller stocks (small caps) that are often excluded from the big indexes. The average market capitalization in the Russell 2000 is approximately $530 million. To put that into perspective, Microsoft alone has a market capitalization of about $280 billion at the time of writing.

Created By: Frank Russell Company in 1972

Number of Companies: 2,000

Types of Companies: Small cap companies from various industries. Exclusions are stocks under $1 and pink sheets .

Selection Criteria: This index consists of the smallest 2,000 companies in the Russell 3000 index.

How it's Calculated: The Russell 2000 is weighted on market capitalization.

Advantages: A well-diversified index for smaller companies with great growth potential.

Disadvantages: The Russell 2000 Indextends to have winning streaks and losing streaks. When small caps come into favor with investors, it tends to perform very well. But the index can be stuck in the doldrums for years when small caps are languishing.

Investing: There are many index funds that track the Russell 2000.