What Is A Benchmark?

A benchmark is a standard or point of reference against which the performance of a security, mutual fund, portfolio, index or other investment can be measured. It is used to compare and evaluate an investment’s performance relative to its peers in the same asset class. Benchmarks are typically established by independent organizations such as Morningstar or Standard & Poor’s (S&P).

Benchmarking helps investors assess how well their investments have performed over time compared with similar investments. For example, if you own shares in a large-cap stock fund that tracks the S&P 500 Index, you can use the index itself as your benchmark for comparison purposes. If your fund has outperformed the S&P 500 over any given period of time then it would indicate that it has done better than average for its peer group. Conversely, if it underperforms then this could suggest that there may be something wrong with either your selection process or management style when selecting funds.

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