Is the Vanguard Russell 2000 ETF a Buy Now?

Key Points

• The Vanguard Russell 2000 ETF tracks 2,000 publicly traded smaller companies.

• Larger companies are benefiting from AI, and the fund is missing out on some of the momentum in the market.

• The fund can be a good way to diversify your investments, but it's not for everyone right now.

• 10 stocks we like better than Vanguard Russell 2000 ETF ›

Funds tracking the Russell 2000 index have been a mainstay for investors for years, giving them the opportunity to own a little piece of 2,000 U.S.-based small-cap companies. At times, the index has outperformed the S&P 500 during periods of rapid economic expansion.

One of the best avenues for investing in the index has been through the Vanguard Russell 2000 ETF (NASDAQ: VTWO) because of its large size and low expense ratio of just 0.07%.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

But is the Vanguard Russell 2000 ETF the right investment for you right now? Here's what you should know.

Image source: Getty Images.

The case for buying the Vanguard Russell 2000 ETF now

Russell 2000 exchange-traded funds are appealing to many investors because they give them a chance to easily diversify their portfolio. Because the funds track the Russell 2000, shareholders have exposure to 2,000 small companies, many of them trying to out-innovate and disrupt much larger rivals.

Each large-cap company started out as a small upstart, so it's easy to imagine how getting in on the ground floor of some small disruptors could be a good long-term investment strategy.

What's more, the Russell 2000 has had periods of growth that far outpaced the S&P 500's gains. The Russell 2000 rose by 150% from 2009 to 2014, while the S&P 500 increased by 130% in that time frame. Those returns came after the Great Recession, as smaller companies were able to eke out more gains following a very difficult economic time.

That's one advantage of investing in the Vanguard Russell 2000 ETF: The share prices of small-cap companies tend to bounce back faster after tough economic times than larger ones. That proved true during the COVID recovery as well, then the Russell 2000 rose faster in response to the federal government's stimulus than the S&P 500 did.

Why some investors may be better off putting their cash elsewhere

One of the drawbacks of investing in the Vanguard Russell 2000 ETF lately has been that it's mostly missing out on the artificial intelligence boom. While some small companies are benefiting from AI, most of the recent gains in the market have come from large companies making big moves in hardware and software, including Nvidia and Microsoft.

This is one of the reasons why the S&P 500 is up about 66% over the past three years, while Vanguard's Russell 2000 fund has gained just 23%. Large tech companies are investing hundreds of billions of dollars into AI right now, and it's fueling a boom in data center infrastructure, cloud computing, data analytics, and AI agents that are collectively worth trillions of dollars. That's simply too big of an opportunity to pass up right now for most investors.

Although this Vanguard fund has occasionally outperformed the S&P 500, its focus on smaller companies means it will almost always be more volatile than the broader market. At a time when AI is booming and there's a lot of uncertainty surrounding tariffs and the economy, putting your money into the Vanguard Russell 2000 ETF may not be as wise a move as investing in an S&P 500 ETF.

I'll end with another caveat. If you believe the economy is headed for a slowdown soon, having some money in Vanguard's Russell 2000 ETF could be smart. Diversifying your investments is almost always a good idea, and if you're overexposed to larger companies or have too much invested in AI stocks, then spreading your portfolio investments around a bit more might help you weather economic bumps down the road.

Should you invest $1,000 in Vanguard Russell 2000 ETF right now?

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 $630,291!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,075,791!*

Now, it’s worth noting Stock Advisor’s total average return is 1,039% — a market-crushing outperformance compared to 182% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of July 29, 2025

Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.