Review & Monitoring
Benchmark
Definition
A reference index or return used to evaluate whether the portfolio is performing as expected relative to its risk profile.
A benchmark is an external reference portfolio or index that provides context for return, risk, or allocation decisions over time.
Why it matters
It provides context for return. A 10% return is good or bad depending on what the relevant benchmark returned in the same period.
What most investors miss
The gap between what the term means and how it is usually applied.
They choose a benchmark that flatters the portfolio. The right benchmark reflects the portfolio's actual risk level and asset mix.
How to read it
Match the benchmark to the portfolio's real allocation not to its best-performing component. A global equity benchmark for a mixed portfolio misstates the comparison.
Multi-account lens
How this term reads differently across brokers and accounts.
Applying a meaningful benchmark to a fragmented portfolio requires knowing the consolidated allocation first. Without that the benchmark comparison is approximate at best.
Related terms
Terms that connect to benchmark.
Portfolio Performance
The overall return of the portfolio over a defined period accounting for all holdings cash and distributions.
Alpha
The return generated above what the portfolio's benchmark or market exposure would have predicted.
Time-Weighted Return
A return measure that removes the effect of cash flows to show the performance of the investment strategy itself.
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