<div id="readability-page-1"><div> <h2>Key Points</h2><ul><li>Investing in small-cap stocks can be a trade-off between risk and growth opportunity.</li><li>The Russell 2000 is the primary index for small-cap stocks, similar to the S&amp;P 500 for large-cap stocks.</li><li>The Vanguard Russell 2000 ETF has outperformed the market to begin the year.</li><li>10 stocks we like better than Vanguard Russell 2000 ETF ›</li></ul>Large companies get a lot of attention because it generally takes many years of consistency to reach that point. They're often well-established businesses worth investing in, but they're not the only companies investors should consider. Having a well-rounded portfolio includes investing in companies of different sizes.Investing in small-cap stocks is a way to capitalize on a growing segment of companies. You don't have to take on the risk that comes with investing in individual small-cap stocks, either. You can invest in a small-cap exchange-traded fund (ETF) that covers a lot of ground in a single investment.Will AI create the world's first trillionaire? Our team just released a report on the one little-known company, called an &#34;Indispensable Monopoly&#34; providing the critical technology Nvidia and Intel both need. Continue »<img src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-dXJsPWh0dHBzOi8vZy5mb29sY2RuLmNvbS9lZGl0b3JpYWwvaW1hZ2VzLzg2NjAyMi9nZXR0eWltYWdlcy0xMjgzMzQyNzU4LTEuanBnJnc9NzAw?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" width="700" height="466" original-src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-dXJsPWh0dHBzOi8vZy5mb29sY2RuLmNvbS9lZGl0b3JpYWwvaW1hZ2VzLzg2NjAyMi9nZXR0eWltYWdlcy0xMjgzMzQyNzU4LTEuanBnJnc9NzAw"/>Image source: Getty Images. <h2>When small-cap stocks tend to outperform the market</h2>There's generally a trade-off people make when investing in small-cap stocks. They're usually more volatile than larger companies because they're more sensitive to broader economic conditions. However, their small size leaves much room to grow as companies scale.There are exceptions -- such as companies in a special niche -- but that's broadly how it works.Small-cap stocks generally outperform the market when interest rates are falling, the economy is in the early stages of recovery, or when the economy's main industry is struggling (like tech has been this year).A good example is the start of this year, with the Russell 2000 outperforming the S&amp;P 500. Through market close on April 16, the Russell 2000 is up 8.4% compared to the S&amp;P 500's 2.7%.<h2>Why go with the Vanguard Russell 2000 ETF?</h2>The Russell 2000 is to small-cap stocks what the S&amp;P 500 is to large-cap stocks. It's the index for them, tracking the smallest 2,000 companies in the Russell 3000 index. The Vanguard Russell 2000 ETF (NASDAQ: VTWO) is a low-cost way to invest in the Russell 2000 index, with an expense ratio of only 0.06% (or $0.60 per $1,000 invested).When you invest in VTWO, you're getting exposure to nearly 2,000 small-cap stocks from every major sector. Here's how the ETF is divided:<ul> <li>Industrials: 19.7%</li> <li>Health Care: 17.2%</li> <li>Financials: 16.2%</li> <li>Technology: 11.6%</li> <li>Consumer Discretionary: 10.9%</li> <li>Energy: 6.1%</li> <li>Real Estate: 5.8%</li> <li>Basic Materials: 4.8%</li> <li>Utilities: 3.4%</li> <li>Telecommunications: 2.6%</li> <li>Consumer Staples: 1.7%</li> </ul>It's much more diversified than indexes like the S&amp;P 500 or Nasdaq-100, where the tech sector accounts for a large share (32% and 60%, respectively). This diversification ensures that your returns aren't too dependent on big tech's performance.No company in VTWO accounts for 1% or more of the ETF. That's a stark difference from the S&amp;P 500, where Nvidia alone accounts for over 7.5% of the 500-plus-stock index. VTWO has underperformed the S&amp;P 500 since its September 2010 inception (mostly thanks to the growth of large tech companies), but its returns have still been respectable in that span.<img src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-dXJsPWh0dHBzOi8vbWVkaWEueWNoYXJ0cy5jb20vY2hhcnRzLzQxYzA3NTNhYWQ4MWNhYTJjYWRjZGY3Y2NiYmYyZjM0LnBuZyZ3PTcwMA?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" width="700" height="443" original-src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-dXJsPWh0dHBzOi8vbWVkaWEueWNoYXJ0cy5jb20vY2hhcnRzLzQxYzA3NTNhYWQ4MWNhYTJjYWRjZGY3Y2NiYmYyZjM0LnBuZyZ3PTcwMA"/> VTWO data by YCharts.<h2>The role the Vanguard Russell 2000 can play in your portfolio</h2>I still recommend keeping most of your portfolio in large-cap stocks because they offer greater stability and lower long-term risk. That said, small-cap stocks can play a key role in your portfolio.I personally try to keep small-cap exposure in my portfolio to no more than 10%, allowing me to benefit from their growth opportunities and hedge against the heavy tech concentration in the S&amp;P 500, while not being overly exposed to their volatility.<h2>Should you buy stock in Vanguard Russell 2000 ETF right now?</h2> Before you buy stock in Vanguard Russell 2000 ETF, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Vanguard Russell 2000 ETF wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $524,786!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,236,406!* Now, it’s worth noting Stock Advisor’s total average return is 994% — a market-crushing outperformance compared to 199% for the S&amp;P 500. Don't miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors. See the 10 stocks » *Stock Advisor returns as of April 21, 2026. Stefon Walters has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc. </div></div>

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The Vanguard Russell 2000 ETF offers a low-cost way to invest in small-cap stocks, which have outperformed the S&P 500 this year. With an expense ratio of 0.06%, it provides exposure to nearly 2,000 small-cap companies across various sectors, ensuring diversification. While small-cap stocks can be volatile, they present growth opportunities, especially in favorable economic conditions. However, analysts suggest maintaining a balanced portfolio, with small-cap exposure limited to around 10%. The ETF has underperformed the S&P 500 since its inception but remains a viable option for investors seeking diversification away from large tech stocks.

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Looking for Small-Cap Exposure? Here Is Why the Vanguard Russell 2000 ETF Deserves a Closer Look.