What is the Russell Index

The Russell index is a group of indices that tracks various markets around the world. For the US markets, the Russell 3000 tracks nearly every stock that trades in the US and accounts for 97% of the US equity markets. The Russell 1000 is an index that tracks the 1000 highest market-capitalization companies in the US, while the Russell 2000 tracks over 2,000 small-cap companies in America. Together, these two are sub-indices and combine to make the Russell 3000.

The Russell 2000 is the most widely known Russell index but the stocks that compose of the index are far from household names. The average market cap for a company in the Russell 2000 is about $3 billion. The Russell 2000 index is a free-float weighted index, which is a slight variation on the market-capitalization weighted system. Rather than just using a company’s total market cap, this system uses the free float shares as a more accurate reading of a company’s value.

Investing in small-cap stocks has been rewarding for investors, and the Russell 2000 is considered a bellwether index for the broader US economy. While it might not have the same star power in terms of companies as the NASDAQ or the S&P 500, investing in the Russell 2000 can provide stellar returns and much needed diversification for your portfolio.

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