FINANCIAL FOCUS
Russell Re-balance
In this installation of Financial Focus, we will discuss the topic of the annual Russell Index re-alignment, or re-balance, taking place this year on Friday, June 28, 2024.
The Russell 3,000 Index is the largest of the group, measuring the performance of the largest 3,000 companies in the U.S. All of the Russell indexes are basically benchmarks that track varying segments of the U.S. market. Others include the 2,000 (which tracks the smallest 2,000 companies of the Russell 3,000), the 1,000 (which tracks the largest 1,000 stocks in the Russell 3,000). There are also categories including, Midcap, Microcap, Value, etc…, providing an array of additional investment options.
The “rebalancing” essentially involves adjusting the weighting of the holdings, and/or adding or removing specific companies. For more information on “weighting,” refer to our Financial Focus - Are you overweight? Blog – dated 4-19-24. This annual adjustment is well-known by professionals throughout the investment community, and the indexes actually announce which companies/stocks will be added, or dropped, ahead of time (unlike your 401k). the Russell will report the expected transactions about 4-5 weeks prior to the actual re-shuffle, and then update/adjust that list, for each index, every week. This allows investors to mimic the moves if they choose, or purchase equities that are expected to rise, as they often do when added to one of these indexes.
The Russell small cap indexes are often considered a potential leading indicator, as the big caps often follow their direction over time. Two popular Russel tracking ETFs are the IWM (the IShares Russell 2000) and IWN (the IShares Russell 2000 Value), which often tend to move in lockstep with each other. These ETFs are among an endless supply of Index, sector, and sub-sector ETFs for those interested in owning or trading a “basket” of stocks, bonds, or commodities, rather than individual stocks.
The Russell re-balancing is very similar to a subject, known as Window Dressing, that we cover in Chapter 1 of our new publication, When to Buy and When to Sell: Combining Easy Indicators, Charts, and Financial Astrology (available on Amazon). This action occurs at the end of every quarter, rather than just once a year, which also includes the end of June. Window dressing is a concept where fund managers replace underperforming stocks with overperforming stocks, to boost the perception of their returns. Please refer to our publication for full details. There does appear to be a difference with the Russell re-alignment, however, considering they announce the changes before the date of implement.
When self-directing your own portfolio, consider allocating a portion of your portfolio to the Russell indexes, but be careful not to repeat your holdings from other funds or individual positions. Remember that you will owe taxes on any sold positions at the end of the year, although not if the portfolio is placed in an IRA.
As always, one’s risk tolerance, age, and retirement plan need to be considered when deciding which approach to choose. Stay disciplined, have a plan, and follow it. Review your options and consider consulting with a financial literacy expert by connecting with a professional on the website www.Becauseyourmoneymatters.com.
For additional discussions and education, please continue to visit our BLOG section here on ASTRO-FIN, where we provide periodic updates on a variety of topics.
