What is a Benchmark?

What is a benchmark and what role does it play in the stock market as far as being used for comparing returns?

Traditional for when investors discuss their investment returns is to compare them to a benchmark. A benchmark is an index which is used to compare performance of an investment, portfolio or fund.

The benchmark is determined by the investor and the standard for the type of investing they are conducting. For example many investors use the S&P 500 as a benchmark because they are simply buying and selling stocks. If their returns that year were higher than the S&P’s returns, they are said to have “beaten the market”.

Read more about benchmarks in the stock terms area of the site (View a full list of all terms).