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Benchmark Definition and Quiz

Like many subtleties in Finance, there is a difference between a benchmark, an index and the Market.
  1. Define - Define Benchmark for portfolios.
  2. Context - Use Benchmark in a sentence.
  3. Quiz - Test yourself.
face pic by Paul Alan Davis, CFA
Updated: February 16, 2021
See below for context on when the term benchmark is used versus others.

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Investing Benchmarks in Portfolio Management

Like many subtleties in Finance there is a difference between a benchmark, an index and the Market.


Benchmark is a portfolio of assets or investments used to compare return and risk, typically for an active portfolio. The benchmark is agreed upon in advance by the active portfolio manager and the client. Benchmark portfolio weights are normally set passively, using one of three methodologies: Equal-weighted, Market-Cap-weighted or Price-weighted. The rebalancing frequency is also known in advance. A benchmark is slightly different from the terms Index and Market.

Synonym: bogey

For context, an investor who oversees a portfolio manager must select a fair benchmark that allows for accurate and realistic comparisons of both return and risk. Comparisons can then be made using holdings-based or returns-based analysis. The most detailed analysis comes from knowing the holdings of the benchmark on a daily basis.

In a Sentence

Tom:  Did they ask any questions about benchmarks in your IB interview with Oldman Slacks?
Kay:  They said not to sweat the details. Just start every answer with "the client comes first."


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Which weighting methodology is least desirable for a benchmark? | Equal or Market-cap or Price?

Price. These were phased out in the 1900s.

Could the S&P 500 be considered a benchmark and an index? | Yes or No?

Yes, but typically only if it was a manager's stated and operational benchmark.

Questions or Comments?

Still unclear on an investing Benchmark? Check out our Excel deep-dive tutorial series with 27 videos called Quant 101. Also, see our risk data on Stocks.

Related Terms

Our trained humans found other terms in the category investing concepts you may find helpful.

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/ factorpad.com / fin / glossary / benchmark.html

investment benchmark
investment index
investment bogey
relative investment
stock benchmark
portfolio benchmark
active benchmark
portfolio management
index fund
comparison index
performance attribution
portfolio performance
market benchmark
stock bogey

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