When it comes to investing in the stock market, many investors are faced with the decision of whether to invest in large cap stocks or small cap stocks. One popular comparison is between the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) and the iShares Russell 2000 ETF (IWM).
While both SPY and IWM offer investors exposure to the stock market, there are some key differences between the two. SPY tracks the performance of the S&P 500 index, which is made up of 500 of the largest publicly traded companies in the United States. On the other hand, IWM tracks the performance of the Russell 2000 index, which is made up of 2,000 smaller companies.
So why do some investors prefer small cap stocks like those in IWM over large cap stocks like those in SPY? One reason is the potential for higher returns. Small cap stocks have historically outperformed large cap stocks over the long term. This is because smaller companies have more room to grow and can benefit from rapid expansion.
Additionally, small cap stocks tend to be less followed by Wall Street analysts, which can create opportunities for investors to find undervalued gems. These stocks are also less affected by global economic events and tend to be more insulated from market volatility.
Of course, investing in small cap stocks also comes with its own set of risks. These companies tend to be more volatile and can be more susceptible to economic downturns. However, for investors who are willing to take on a bit more risk in exchange for potentially higher returns, small cap stocks like those in IWM can be an attractive option.
In conclusion, while both SPY and IWM offer investors exposure to the stock market, there are reasons why some investors may prefer small cap stocks like those in IWM. With the potential for higher returns and opportunities to find undervalued stocks, small cap stocks can be a valuable addition to a diversified investment portfolio.