russell2000,1000 and S&P 500

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looking
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russell2000,1000 and S&P 500

Post by looking » Wed Sep 12, 2018 12:05 am

Hi BH

How it tracks the market and what is included in the index. --The Russell 2000 and 1000, and S&P 500
What is the difference between the benchmark the S&p 500 and --the Russell 2000, and Russell 1000.-- how it tracks the market. and according to report the Russell ( 8.30%) is better performing than S&P 500( 3.43%) in 2018, and so if invested Russell, more returns than S&P 500 in 2018 I'm right ???.

Thank you for your input.

Best wishes.

MotoTrojan
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Re: russell2000,1000 and S&P 500

Post by MotoTrojan » Wed Sep 12, 2018 12:43 am

looking wrote:
Wed Sep 12, 2018 12:05 am
Hi BH

How it tracks the market and what is included in the index. --The Russell 2000 and 1000, and S&P 500
What is the difference between the benchmark the S&p 500 and --the Russell 2000, and Russell 1000.-- how it tracks the market. and according to report the Russell ( 8.30%) is better performing than S&P 500( 3.43%) in 2018, and so if invested Russell, more returns than S&P 500 in 2018 I'm right ???.

Thank you for your input.

Best wishes.
Russell 1000 is very similar to the S&P500. Russell 2000 (small-caps) is very similar to the S&P600. Many, including myself, prefer the S&P indexes over Russell, but comparing large-cap to small-cap is an entirely different thing.

Not sure where you saw 3.43% for the S&P 500; it is a good bit higher than that, and that doesn't include dividends.

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JoMoney
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Re: russell2000,1000 and S&P 500

Post by JoMoney » Wed Sep 12, 2018 2:27 am

The Russell 3000 is the "FTSE Russell" family of indexes version of the "US Total Market". It can be split into the Russell 1000 (Large and Mid-Cap) and the Russell 2000 (Small-Caps). The Russell 1000 makes up about 90% of the "US Total market", and the Russell 2000 about 10%.

The S&P 500 is an index put out by Standard & Poors. It also attempts to track the broad market, but is more of a Large-Cap index with some additional selection criteria. The S&P 500 stocks make up about 80% of the "US Total Market".

Here's a link to a Morningstar Total Return (including dividends) growth chart for all of those indices that you can adjust to see different time periods. Past returns are not indicative of future returns.
Chart Link
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nisiprius
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Re: russell2000,1000 and S&P 500

Post by nisiprius » Wed Sep 12, 2018 6:43 am

The S&P 500 was created in 1957, a successor to two earlier indexes. Here are some notes on the history of some indexes.

1) Charles Dow began to calculate the first of several stock market averages in 1884. They are not what we now call "indexes." He created the Dow Jones Industrial Average 1896. It was intended to be used in conjunction with the Dow Jones Railroad Average to do technical analysis and market timing. People knock the DJIA because the way it is calculated is grotesquely irrational and unscientific, but it has the benefits of continuity (calculated in the same way for 122 years) and familiarity. Despite the way people like to focus on allegedly different behavior of different parts of the stock market, stocks are stocks and mostly rise and fall together, and even though the DJIA is a crazy calculation, it actually is a decent measure of "the stock market" anyway. It's actually possible to invest in it through an ETF called DIA.

2) In 1922, Irving Fisher published The Making of Index Numbers, in which he laid out the justifications for cap-weighted indexing and set forward the methodologies used today in everything called a stock "index." One of the predecessors to Standard & Poor's--I forget whether it was Standard or Poor's!--began to calculate some indexes, including a "composite" index that included about 90 stocks.

3) In 1957, it became feasible to calculate a 500-stock index daily and the S&P 500 was born. At that time, ordinary investors were not interested in small-caps, and S&P tried to define the universe of stocks to index by choosing the stocks of "leading companies in leading industries." So, it was a somewhat subjective criterion. The procedure of committee selection of stocks continues. If it were today, they might have decided to index the 500 largest-cap stocks, but they didn't. The S&P 500 includes some mid-caps and leaves out some large-caps. People attacking index funds like to pretend that indexing = the S&P 500 and nothing else, and like to pretend that the S&P 500 is terribly flawed; it isn't.

4) In 1976, John C. Bogle and Vanguard launched the first index fund, now called the Vanguard 500 Index.

5) In 1974, Wilshire Associates began calculating a 5000-stock index, the Wilshire 5000, an attempt to comprehensively include the total market.

6) In 1981, Rolf Banz published a paper, possibly based on problematical data, about his discovery of what is now called the "size factor" or the "small firm effect." According to his data, small-cap stocks had had both higher return and higher risk-adjusted return. This created a wave of interest in small caps as such, segmentation of stocks by cap size, and indexes like the Wilshire 5000 that did not limit themselves to large-caps.

7) In 1984, Russell launched the Russell 1000, Russell 2000, and Russell 3000 indexes which segment the market into large- and small-caps scientifically by cap-weight. As the first well-known small-cap index, the Russell 2000 continues to be used for benchmarking and for the index tracked by some small-cap index funds.

8) As indexing has become more popular, there is an issue that does not arise with total market indexes, but does arise with indexes that track only a part of the market. That is, funds that track the index need to buy or sell stocks as the enter or get dropped from the index, and if the rules are too mechanical, it is possible for traders to "front-run the index," i.e. guess that a stock is about to get added to an index, and will get a small price boost when index funds purchase it, so they can buy the stock in anticipation of the price rise. This is often said to be a real problem with the Russell 2000. "Modern" indexes try to make this difficult in various ways, such as by randomizing the day when stocks are added to the index.

In reality, the difference between the S&P 500, the Russell 1000, and other large-cap indexes seem completely negligible to me. For example, here are growth charts for:

a) the Vanguard 500 Index Fund, VFIAX blue;
b) an ETF, iShare IWB, that tracks the Russell 1000, orange;
c) the Vanguard Large-Cap Index Fund, VLCAX, green.

VLCAX, rarely mentioned in the forum, tracks an index which, like the Russell 1000, is chosen by purely by cap weight, but it's a different index. It's a CRSP index of about 600 stocks. The point is... there's no difference to speak of.

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nisiprius
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Re: russell2000,1000 and S&P 500

Post by nisiprius » Wed Sep 12, 2018 6:54 am

looking: Most Bogleheads advocate tracking the total stock market, e.g. by using the Vanguard Total Stock Market Index Fund, or many other choices from other companies. The Fidelity Zero Total Market Index Fund has gotten a lot of press and forum attention, for example.

I think beginners should start with a total market fund, and not to pay much attention to raw recent return numbers. It is not easy to decide whether some fund or market sector is better or worse than the market as a whole.

Many of us, including me, begin and end with the total market.

Some Bogleheads believe in a methodology called "factor-based investing." This calls for departing from the total market, for example by investing in "small-cap value" stocks in a higher proportion than in the total market. This is often called a "tilt." Do not jump into this casually. Factor investing requires looking at the details critically, and getting some understanding of the research and data behind it. It means combining factors in fairly specific ways. It does not mean looking at the past 10-year return of a small-cap fund versus a large-cap fund and buying the fund that happened to have the highest return.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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