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A standard index or reference point against which the performance of a security, fund, or portfolio is measured.
Common benchmarks include the S&P 500 for U.S. large-cap stocks, the Russell 2000 for small-cap stocks, and the Bloomberg Aggregate Bond Index for fixed income. A fund that returns 8% sounds good in isolation, but if its benchmark returned 12%, the fund actually underperformed by 4 percentage points. Choosing the right benchmark is critical because comparing a technology fund to a bond index would be meaningless. Benchmarks also serve as the basis for calculating alpha and tracking error.