Learn · Risk and performance
Benchmark
A benchmark is a reference index, security, or portfolio used to judge performance or risk over a defined period.
Plain-English definition: A benchmark is a reference index, security, or portfolio used to judge performance or risk over a defined period.[1]
How the term is used
The benchmark should reflect the exposure being evaluated. A broad U.S. stock index may be reasonable for a diversified U.S. equity fund but poor for a bond fund, gold trust, or foreign small-company portfolio.[1]
What to check before relying on it
Name the benchmark, currency, return type, dates, and rebalancing assumptions. Benchmark choice can change beta, alpha, relative return, and the story a chart appears to tell.
Example
A covered-call equity ETF can lag a rising stock index while still behaving as designed. The comparison becomes more useful when distributions and the strategy's option exposure are included.
Sources
- CFA Institute: Portfolio Performance Evaluation — benchmark quality and the distinction between market indexes and performance benchmarks. Accessed October 24, 2026.