What is a Benchmark Index? (with photos)

A benchmark is a standard benchmark used to compare the results of similar investments over time.

A benchmark is a standard benchmark used to compare the results of similar investments over time. Investors can use a benchmark to analyze the earnings of an individual or institutional investment portfolio. Different indices can be used to measure portfolio gains on stocks, bonds and commodities.

An index of common stocks is the S&P® 500. Investors can compare the gains of stocks in the S&P® 500 index with the gains of stocks in their own portfolios. This index tracks the performance of 500 stocks of large cap companies that are actively traded in the United States. Generally, a stock investor’s goal is to make a portfolio outperform, or outperform, the S&P® 500 stock index. The Russell 2000® index is another stock index that tracks 2,000 small cap stocks in the United States. .

The Dow Jones Industrial Average is the most cited benchmark in newspapers, on television and on the Internet.

The Dow Jones Industrial Average is another benchmark that investors often use to measure the results of their investment portfolio. This tracks the earnings of 30 shares widely held by individual and institutional investors. Companies included in the Dow Jones Industrial Average are generally the largest and most prominent companies in the United States. According to the Dow Jones website, the Dow Jones Industrial Average is the most cited benchmark in newspapers, on television and on the Internet.

Bond investors also use benchmarks to review their results. The Lehman Brothers’ Aggregate Bond Index is a popular bond benchmark. This includes investment grade fixed rate bonds. Bond types included in Lehman Brother’s Aggregate Bond Index include treasury, government, mortgage and corporate bonds.

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Indices that focus on specific sector stocks are also available. This can provide insight into the performance of an overall market sector. Sectors that are typically tracked separately by various indices include transportation, utilities, and retail.

Commodity investors also use indices to measure their results. The S&P® GSCI index tracks 24 different commodity prices. These materials include petroleum, natural gas, livestock, sugar, coffee and other widely used raw materials.

Benchmarks have a long history in the United States. The S&P® 500 began in 1957. The Dow Jones Industrial Average, created in 1896, is now over 100 years old. With its debut in 1986, the Lehman Brothers Aggregate Bond Index is relatively new. While investors cannot directly invest in an index, many financial institutions have created mutual funds that mimic indices. For example, an investor might buy shares in a mutual fund that only contains S&P® 500 shares.

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