After looking at large companies stocks ETFs in recent posts, we have started looking into small company stock ETFs.  So why would we do that?  After all, large companies typically have well established products and a well-established financial history.

However, their big growth days may be behind them.  So investing in them is less risk, but perhaps less reward.  And so the value of their stock may be less volatile, swing up and down less, be more stable and less heart stopping.

On the other hand, people can invest in small, newer companies.  And they do that because their big growth days could still be ahead of them.  Of course, they don’t have as much of an established track record yet, and some may eventually go out of business.  Also, their stock price will be more volatile, which reflects this real risk.

So why would anyone put up with that?

Well, because the future payoff for some of them may be great.  After all, think of Apple and Google, because they were small companies once.  And early investors that bought and held on to their stocks made a fortune.

So small cap stocks offer higher growth potential.  And better yet, small cap ETFs have outperformed the S&P 500 (big stocks) in the long run.

So more risk, more reward.  So let’s have a look at another small cap ETF, for investors willing to accept more risk for higher potential gains.

VB – Vanguard Small-Cap Index Fund ETF
VB is another ETF for those investing in small companies in the US stock market.  There are 1384 stocks in this fund.

As mentioned, people invest in small companies because they are betting they have a big future ahead of them.  So some of these small companies may eventually pay off big.   But again, remember that some of these can fail in this early stage.  So these investments can be volatile with bigger price swings than others.

But buying over 1384 of them, about double VIOO, gives more diversification, which helps even things out.  And unlike VIOO, VB has some medium size and medium/small companies as well as small companies in it.

VB is a blend of growth and value so buying VB gives you some small growth stocks and some small value stocks.  However, VB seems more oriented toward growth with a P/E ratio of 15.7, about three times that of VIOO.

The ETF follows the CRSP US Small Cap Index, described as a widely diversified index of stocks of small U.S. companies.  And it pays a 1.39% dividend which is about average.  And it has a quite low net expense ratio of 0.05%, which is half of the VIOO expense ratio.

But overall it pretty much represents all of the smaller stocks in the market, both growth and value, is low cost, and pays a dividend.  And it’s been around since 2000, so it’s well established at this point.

You can think of investing in the VB as getting in on the exciting action of small stocks with the reduced risk of wide diversification to smooth out the ride, although still bumpier than ETFs with larger stocks.

Indexed to: CRSP US Small Cap Index

Expense Ratio: 0.05%

Total Assets: $151.7 billion

Annual Dividend Yield: 1.39%

P/E ratio: 15.7

Fund Inception: 11/13/2000

Top Holdings:

• TRGP     Targa Resources Corp.
• AXON    Axon Enterprise, Inc.
• SW         Smurfit Westrock Plc
• DECK     Deckers Outdoor Corporation
• FCNCA   First Citizens BancShares, Inc.
• BLDR     Builders FirstSource, Inc.
• BAH       Booz Allen Hamilton Holding Corporation
• PTC        PTC Inc.
• CSL        Carlisle Companies Incorporated
• ATO      Atmos Energy Corporation

So that’s the VB – Vanguard Small Cap Index Fund ETF.

In our next post, we’ll look abroad to an international stock fund.  Because there are many profitable international companies too.  And we just might want to invest in them.

So you’ll want to check it out when we post it.

And if you found this sample chapter from our latest book interesting, you can check it out at Exchange-Traded Funds For Beginners for free right here.