Benchmark

Definition

Benchmark in plain English

A benchmark is the scoreboard you measure an investment against, so you can tell whether it actually did well or just got lucky riding a rising market. It's a reference collection of investments — like a well-known index of big U.S. companies — that stands for 'the average result you could have gotten.' If your fund gained 8% but its benchmark gained 12%, you actually underperformed, even though a gain sounds good. It's like grading a runner not by finishing the race, but by comparing their time to the rest of the field.

Learn these first

• Beta
• Capital structure

Related Principles of Finance terms

• Accrued interest
• Allocation effect
• Basis
• Basis point
• Bond-equivalent yield (BEY)
• Bootstrapping
• Callable bond
• Clean price
• Comparable company analysis (comps)
• Control premium