Investors use indexes as benchmarks, or yardsticks of investment return. These benchmarks can help you evaluate
the performance of the overall market, particular market sectors and industries, individual securities, and active invest- ment management. For example, you can measure the performance of a large-cap stock portfolio of US companies against the S&P 500, the DJIA, the MSCI Large-Cap 300, or the Russell 1000. What’s more, since the goal of an active investment manager, whether he or she is overseeing a portfolio of individual investments or an actively managed mutual fund, is to provide a stronger return than the relevant index, you can evaluate the manager’s results against that same standard. You’ll find that some managers out- perform some of the time, but only a few of them are able to do so over extended periods. Just because an investment outperforms
 its benchmark in a particular year doesn’t necessarily mean it’s right for your portfolio. You still want to evaluate each investment
in light of your risk tolerance, time horizon, and overall investment strategy. Similarly, an investment that misses its benchmark from time to time may still be a smart addition to your portfolio if it helps you diversify. Not all benchmarks are   Read more…