Select ETFs: Small Cap US Equities

The investment thesis behind small cap investing is the growth factor associated with these securities. While mega-cap companies have already peaked, smaller companies can be the next juggernaut.

The downside of small cap investing is the added risk. Changes in regulation, credit availability, or product viability could cause stock prices to plummet. While some exposure to these small companies is healthy for a portfolio, the allocation should be kept relatively small as this segment of the market experiences extreme volatility. Investors in total market ETFs already have some allocation to small caps and should be careful not to inadvertently overweight a risky area.

Conversely, investors with a strong conviction in small caps may want to complement a total market fund with a targeted small cap fund.

Best for Liquidity (Short-term Trading)

iShares Russell 2000 ETF (IWM)

Expense Ratio: 0.19%

This ETF seeks to track the investment results of the Russell 2000 Index, an index composed of small-capitalization U.S. equities. Given this investment objective, IWM may be useful to diversify a U.S. stock allocation and seek long-term growth in your portfolio.

Best for Cost (Long-term Investment)

BNY Mellon US Small Cap Core Equity ETF (BKSE)

Expense Ratio: 0.04%

The ETF seeks to match the performance of the Morningstar® U.S. Small Cap IndexSM, which includes small cap U.S. stocks whose cumulative total market capitalization represents approximately the bottom 3% to 10% of the remaining securities. BKSE is priced to match or beat rivals like the iShares Core S&P Small Cap ETF (IJR) or the SPDR Portfolio S&P 600 Small Cap ETF (SPSM).

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