Glossary · Defined term
Benchmark
A benchmark is a standard, usually a market index, used to judge the performance of an investment or portfolio.
Last updated Oct 2, 2026
What it means
A benchmark is a standard, usually a market index, against which the performance of an investment or portfolio is measured. Asking whether a fund beat its benchmark is how investors judge whether active management added value beyond simply owning the market. A U.S. large-cap stock fund might use the S&P 500; a bond fund might use a broad bond index. The right benchmark should match the investment's style and holdings, since comparing a small-cap fund to a large-cap index would be misleading. Benchmarks also anchor expectations, showing what a passive alternative would have returned.
An example
For illustration, a fund returns 9 percent in a year while its benchmark index returns 11 percent. The fund underperformed its benchmark by 2 percentage points, meaning investors would have done better simply tracking the index. That gap is the starting point for judging the manager.