Indexes as benchmarks

	Not all benchmarks are indexes or averages. Bond yields, for example, are commonly measured against the current yield for similarly maturing bonds. For example, the 10-year U.S. Treasury note is commonly used to measure corporate or government bonds maturing in about 10 years.

Benchmarks let you evaluate the performance, over time, of the individual securities or mutual funds in your portfolio. For instance, if your small-cap mutual fund lost 10% in a year when the Russell 2000 Index — the standard benchmark for small-cap stocks — gained 20%, you may want to reconsider your investment choice. But if your fund losses were on par with other small-cap stock funds, you might want to adopt a wait-and-see approach.

One thing you don’t want to do is measure the performance of one asset class — such as stocks — or subclass — such as small-cap stocks — against the benchmark for another. While the Russell 2000 can tell you something about how small-cap stocks are doing, it can tell you very little about the performance of your blue chip portfolio in comparison to the rest of the large-cap market. You’d want to measure the performance of your large-cap portfolio against the S&P 500 or the DJIA.

Popular benchmarks

Bonds and other fixed-income investments	Current 10-year Treasury note yield Lehman Brothers Aggregate Bond Index

Large-cap stocks	Standard & Poor's 500-stock Index Dow Jones Industrial Average

Small-cap stocks	Russell 2000 Index

Technology stocks	Goldman Sachs Technology Index NASDAQ Composite Index

Socially responsible stocks	Domini 400 Social Index

Total U.S. market	Wilshire 5000 Index

Global markets	Morgan Stanley Capital International (MSCI) World Index Europe, Australasia, Far East (EAFE) Index

International markets	Nikkei 225 (Japan) FT 100 (UK)

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