GLOSSARY TERM
Benchmark
A benchmark is a reference point used to compare how an investment is doing. It helps you see whether a fund or portfolio is performing better, worse or about the same as the market it is meant to follow.
What does this mean in practice?
A benchmark is often a market index, such as a global stock index or a local stock market index. Investors use it to judge results in context. A return of 6% may look good on its own, but if the benchmark returned 10%, the investment did worse than the market.
Example
If you invest in a global equity fund, its benchmark might be a world stock index. If the fund gains 8% in a year and the benchmark gains 9%, the fund slightly underperformed its benchmark.
Why it matters
A benchmark helps you measure performance more fairly. It shows whether an investment is doing what it is supposed to do and helps you avoid judging results without context.
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