The S&P 500 and Russell 2000 are two of the most widely followed stock market indexes, each representing different segments of the market. Understanding their d

Russell 2000

S & P 500

S&P 500 vs Russell 2000: Which Index is Better for Your Portfolio?


blog post cover photo

Image credit: Chris Liverani

The S&P 500 and Russell 2000 are two of the most widely followed stock market indexes, each representing different segments of the market. Understanding their differences can help investors decide which index better aligns with their investment strategy and goals.

What is the S&P 500?

The S&P 500 (Standard & Poor's 500) is a market-capitalization-weighted index of 500 of the largest publicly traded companies in the United States. It is considered a benchmark for large-cap U.S. equities.

Key Features of the S&P 500:

  • Large-Cap Focus: Includes large, well-established companies.
  • Market-Cap Weighting: Companies are weighted based on their market capitalization.
  • Diversification: Covers various sectors, providing broad market exposure.

Advantages of the S&P 500:

  • Stability: Represents large, stable companies with strong financials.
  • Historical Performance: Historically provides steady, long-term growth.
  • Benchmark Status: Widely used as a benchmark for U.S. equity performance.

What is the Russell 2000?

The Russell 2000 is a market-capitalization-weighted index representing 2,000 of the smallest companies in the Russell 3000 index. It is considered a benchmark for small-cap U.S. equities.

Key Features of the Russell 2000:

  • Small-Cap Focus: Includes smaller, emerging companies.
  • Market-Cap Weighting: Companies are weighted based on their market capitalization.
  • Growth Potential: Offers exposure to companies with high growth potential.

Advantages of the Russell 2000:

  • High Growth Potential: Small-cap companies often have higher growth potential.
  • Diversification: Provides exposure to a broad range of small-cap stocks.
  • Market Indicator: Useful for gauging the performance of the small-cap segment.

Key Differences Between the S&P 500 and Russell 2000

  1. Market Cap:

    • S&P 500: Focuses on large-cap companies.
    • Russell 2000: Focuses on small-cap companies.
  2. Risk and Volatility:

    • S&P 500: Generally less volatile, with more stable companies.
    • Russell 2000: Higher volatility, with smaller, potentially more volatile companies.
  3. Growth Potential:

    • S&P 500: Provides steady growth with established companies.
    • Russell 2000: Offers higher growth potential with emerging companies.

Which Index is Right for Your Portfolio?

  1. Risk Tolerance:

    • Low to Moderate Risk: S&P 500, with its stable, large-cap companies.
    • High Risk: Russell 2000, with its volatile, small-cap stocks.
  2. Investment Goals:

    • Long-Term Stability: S&P 500, offering steady returns.
    • Aggressive Growth: Russell 2000, with potential for higher returns.
  3. Diversification Needs:

    • Broad Market Exposure: S&P 500, covering various sectors.
    • Small-Cap Exposure: Russell 2000, focusing on smaller companies.

Practical Examples

  • Conservative Investor: May prefer the S&P 500 for its stability and historical performance.
  • Aggressive Investor: Might choose the Russell 2000 for its growth potential and exposure to emerging companies.


The S&P 500 and Russell 2000 each offer unique benefits for investors. The S&P 500 provides stability and steady growth, making it suitable for conservative investors. The Russell 2000 offers higher growth potential and exposure to small-cap stocks, appealing to more aggressive investors. Understanding your risk tolerance, investment goals, and diversification needs will help determine which index is better for your portfolio.

Call to Action

For more insights and tools to enhance your investment strategy, visit FinancialModelingPrep.

Other Blogs

Nov 25, 2023 6:39 AM - Parth Sanghvi

DCF Valuation vs. Comparable Companies Analysis: Choosing the Right Valuation Method

Choosing the Right Valuation Method: DCF vs. Comparable Companies Analysis Introduction: Valuation methods play a pivotal role in determining the fair value of a company, aiding investors in making informed investment decisions. Two commonly used methods, DCF Valuation and Comparable Companies A...

blog post title

Dec 23, 2023 2:19 AM - Parth Sanghvi

Understanding the Limitations of DCF Analysis: A Guide to Overcoming Challenges

Introduction: Discounted Cash Flow (DCF) analysis stands as a cornerstone in valuing investments, yet its efficacy is contingent upon various assumptions and methodologies. While a powerful tool, DCF analysis comes with inherent limitations and challenges that investors must acknowledge to make i...

blog post title

Dec 25, 2023 2:28 AM - Parth Sanghvi

Integrating Sustainability into Valuations: Navigating ESG Factors within the Discounted Cash Flow (DCF) Model

Introduction: The investment landscape is undergoing a profound shift with a heightened emphasis on sustainability and responsible investing. In this blog post, we explore the intersection of Environmental, Social, and Governance (ESG) considerations within the Discounted Cash Flow (DCF) model, h...

blog post title


Financial Modeling Prep API provides real time stock price, company financial statements, major index prices, stock historical data, forex real time rate and cryptocurrencies. Financial Modeling Prep stock price API is in real time, the company reports can be found in quarter or annual format, and goes back 30 years in history.
2017-2024 © Financial Modeling Prep