What is a benchmark in investing?

A benchmark is a standard with which to measure performance. In investing, benchmarks are generally indexes of investment instruments against which portfolio performance is evaluated. Depending on the particular investment strategy or mandate, the benchmark will differ. There are benchmarks for every type of investment and strategy.

What are benchmark indexes & how are they created?

Benchmark indexes have been created across all types of asset classes. For example, the S&P 500 and Dow Jones Industrial Average are two of the most popular large-capitalization stock benchmarks in the equities market. The S&P 500 was created by Standard & Poor's.

What is a benchmark for a portfolio manager?

By assigning the manager a benchmark with which to compare the portfolio's performance, the portfolio manager will make investment decisions with the eci's performance in mind. The most commonly used benchmarks are market indexes such as the Dow Jones Industrial Average, the S&P 500, or the Russell 2000.

Why are market benchmarks important?

Market benchmarks are important because they allow investors to compare their holdings' performance against reliable metrics. Additionally, benchmarks indicate the health of a market—you can also see how a particular class is performing or view the equities market performance as a whole.