Small cap stocks, defined as companies with market cap between $300 million and $2 billion, are crucial for building a diversified portfolio. They historically outperform large caps, as shown by the Russell 2000 Index's average return of 8.7% compared to the S&P 500's 7.8%. While small caps like Monster Beverage demonstrate growth potential, they also bring risks such as volatility and liquidity issues. ETFs like iShares Russell 2000 and Vanguard Small Cap provide avenues for investors to manage these risks while capturing growth. The iShares Russell 2000 ETF, in particular, is recommended for its expansive market coverage and performance.
Small cap stocks enhance portfolio diversification by balancing risk and reward while offering significant growth potential, often outperforming larger established stocks.
The Russell 2000 Index shows how small caps have historically provided higher returns than the S&P 500, demonstrating their value for long-term investors.
While small caps are riskier and more volatile, they offer a unique opportunity for growth, especially in sectors less affected by large-cap-dominated industries.
iShares Russell 2000 ETF is highlighted as a superior option for small cap investment due to its comprehensive market representation and investor-friendly features.
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