Portfolio benchmark
Definition
A portfolio benchmark is a reference point, usually an index such as the S&P 500 or WIG20TR, that you compare your investment results with to see if you are beating it.
A benchmark is a reference point for a portfolio’s results. It is usually a stock index such as the S&P 500, MSCI World or WIG20TR, but it can also be inflation, a deposit rate or a model portfolio. A benchmark answers the question most investors ask: did I beat the market, or would I have done better buying a cheap index ETF?
How to compare a portfolio with an index fairly
- Use TWR, not MWR or the simple return. The index has none of your deposits and withdrawals, so the portfolio must be measured without them too.
- Compare in the same currency. The S&P 500 in dollars and in zloty are two different results, because the exchange rate comes into play.
- Compare the same period, from the same start date to the same end date.
- Pick total-return indices such as WIG20TR, which include reinvested dividends. A price index understates the market’s result.
Example: your one-year TWR in zloty is +15%, and the S&P 500 in zloty gained +10% over the same period. You beat the index by 5 percentage points.
How to pick a benchmark
A benchmark should resemble what you actually invest in. A portfolio of Polish dividend stocks is better compared with WIG20TR or mWIG40TR than with the NASDAQ 100. A global portfolio fits a world index, and a mixed stock and bond portfolio fits a blend of indices. Beating the benchmark is not a goal in itself: read the result together with the risk you took.
Benchmarking in FundStat
The Compare page sets your portfolio’s TWR in your currency against the S&P 500, NASDAQ 100, WIG20TR, mWIG40TR, emerging markets, gold and Polish inflation, among others.
Related terms
All terms- TWRTWR is a time-weighted rate of return: it measures the investments alone, without the effect of deposits and withdrawals. It is the standard for benchmarking.
- MWR vs TWRMWR measures the investor’s result including the timing of deposits; TWR measures the portfolio alone. One portfolio can have a positive TWR and negative MWR.
- Portfolio alpha and betaBeta measures how strongly a portfolio reacts to market moves. Alpha is the excess return over what you could expect given that beta.
- Exchange-rate impact on investment returnsWith foreign assets, your home-currency return combines the asset’s price change with the exchange-rate change. A stock can rise in dollars and still lose you money.