Benchmark
The index a portfolio is measured against.
What is Benchmark?
A performance yardstick that must match the portfolio's actual risk and style to mean anything. Benchmark mismatch is the most common way performance gets presented misleadingly.
Benchmark: a worked example
Judging a small-cap value fund against the S&P 500 tells you nothing useful.
More terms in Portfolio Management
Asset Allocation
How a portfolio is split across stocks, bonds, cash, and alternatives.
Rebalancing
Periodically restoring the portfolio to its target weights.
Dollar-Cost Averaging
Investing a fixed amount on a fixed schedule regardless of price.
Modern Portfolio Theory (MPT)
Optimize the portfolio as a whole, not security by security.
Efficient Frontier
The set of portfolios with the best return for each level of risk.
Capital Asset Pricing Model (CAPM)
Expected return = risk-free rate + beta x market risk premium.
Efficient Market Hypothesis
Prices already reflect available information.
Compound Annual Growth Rate (CAGR)
The smoothed annual rate that gets you from start to end value.