Measuring Performance

Identifying a suitable benchmark

1

Finding a suitable benchmark to mirror your stock selections is important. Otherwise, you may assume that your returns are below or above average for the risk that you have taken on in your portfolio.

2

Most investors use a stock market index as their benchmark, such as the S&P500. However, this may not always be the most suitable choice, especially if an investor specializes in a particular sector.

3

For example, if an investor specializes in the technology sector, it would be more appropriate to use the S&P 500 information technology index, rather than the whole of the S&P 500 index.

4

The country that you are investing in is another factor, as investors should match their benchmark with that country. If you are investing in multiple countries, it may be better to use a global index fund.

Test your knowledge...

1. How much can you expect to earn from a cash investment?

Copyright © 2021 Methodology

That's wrong - try again!