What Is a Benchmark? Definition, Types, How to Use Them

What Is a Benchmark?

By Catherine Brock – Updated Sep 4, 2025 at 11:59 PM EST

Key Points

Benchmarks like S&P 500 and MSCI Indexes help compare asset performance.
Investors use ETFs and indexes to gauge market segments and make informed decisions.
Specific benchmarks enable precise asset class and market segment evaluations.

A benchmark is a standard used for comparison and assessment. Benchmarks help investors evaluate a security's performance and risk profile. Below, you'll learn more about investing benchmarks, meet a few common ones, and discover how to use them to improve your investing strategy.

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Exchange-Traded Fund (ETF)

An exchange-traded fund, or ETF, allows investors to buy many stocks or bonds at once.

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Stocks and funds

You can compare a stock's or fund's performance to one or more benchmarks representing the asset's peer groups. If it's a start-up biotech company, for example, you'd look at small-cap and biotech indexes. If you're analyzing a mid-cap growth fund, you'd find a mid-cap growth index. Benchmarking is often easier with a fund because funds will publish benchmark returns along with the fund's performance.

Market segments

A benchmark can quickly tell you how a specific market segment performs. Wondering how volatile bitcoin really is? Check the five-year chart for the S&P Bitcoin Index. Thinking about getting into investing in real estate investment trusts (REITs)? See the FTSE Nareit Equity REITs Index.

Asset allocations

Broad indexes that include different asset classes and types can demonstrate how specific asset allocations behave over time. You could also use weighted averages of focused indexes to assess new asset allocations.

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Over the past decade, the fund has returned an average of 4.25% annually. The benchmark return is slightly higher at 4.54%. A small underperformance to the benchmark is typical for funds. Funds, unlike indexes, have fees and timing issues related to trades.

Since the fund's inception in 1994, it has had the same average annual return as the index: 6.17%. The fund's 4% to 6% return over time is modest relative to an all-stock benchmark like the S&P 500. This is what you'd expect from a conservative fund. If you wanted higher returns, you'd seek out a fund with more exposure to stocks than bonds.

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About the Author

Catherine grew up in Southern California wearing a lot of black and trying to perfect the art of sarcasm. Prior to joining The Fool as a contract writer, Catherine was climbing the corporate ladder in marketing roles and dabbling in too many side hustles. When she's not writing, she can be found riding a horse in the country or shopping online for clothes.

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Catherine Brock has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.