Glossary - Benchmark
In finance and investment, a benchmark is a standard or point of reference against which the performance of a security, investment portfolio, or asset manager can be measured. Benchmarks are used for goal-setting and performance assessment, and they vary across different asset classes and sectors. They are crucial for investors to evaluate the success of their investment strategies.
Also known as
- Reference Point
- Standard
- Index
Use cases examples
- Investment Policy Statement: The portfolio's performance should be evaluated on an annual basis against the S&P 500 Index, serving as the benchmark for comparison.
- Mutual Fund Prospectus: This fund aims to outperform the Bloomberg Barclays US Aggregate Bond Index, which will serve as the benchmark for its fixed income investments.
Considerations for investors
- Investors should choose appropriate benchmarks that align with the investment's goals, risk profile, and market sector.
- Regularly reviewing and understanding the reasons for an investment's performance relative to its benchmark can help in making informed decisions about portfolio adjustments.
Considerations for founders
- Understanding the benchmarks relevant to their company's sector can help founders set realistic financial targets and evaluate growth adequately.
- Founders should be aware that investors may compare their company's performance against established benchmarks to assess investment potential.
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