7.3.15. Portfolio Benchmarks
Portfolio managers often compare the performance of a portfolio to a benchmark. Benchmarks are often indexes that reflect a certain market of securities. An index is a basket of securities chosen from the market it is meant to represent. For example, a broad-based index is one that is meant to capture the performance of the entire market. Portfolio managers try to choose benchmarks that best represent the investments in a portfolio.
• The smallest broad-based index is the Dow Jones Industrial Average. It is the best known and oldest equity index in the U.S., but it tracks just 30 stocks. This is the best benchmark for a portfolio filled with blue chip stocks.