Benchmark

A benchmark is a standard or point of reference against which the performance of a security, investment portfolio, or financial product can be measured. In finance, benchmarks are typically market indices, such as the S&P 500 or the FTSE 100, that represent the performance of a broad segment of the market. Investors and fund managers use benchmarks to evaluate the performance of their investments, comparing returns to see if they are outperforming or underperforming the market. Benchmarks also help set investment goals and guide portfolio management decisions.

Example

A mutual fund that invests in large-cap U.S. stocks might use the S&P 500 Index as its benchmark to assess whether it is delivering competitive returns compared to the broader market.