What is Benchmark?
A benchmark is the yardstick an investment is measured against, usually an index that covers the same kind of assets. A fund that buys large Canadian companies might be compared with the S&P/TSX Composite, and one that buys large US companies with the S&P 500. Beating or trailing the benchmark tells you whether the manager's choices added anything.
Why Benchmark matters
A return means little on its own; the benchmark tells you what you could have earned by simply owning the market.
Related terms
Lessons that use this term
- Index funds explained: what they are and how they work
- What is an index (S&P 500, Nasdaq, Dow explained)