By Kristin Hovencamp, CPWA®
When investors compare their year-to-date (YTD) performance to the market, they usually compare performance of a particular benchmark index. A benchmark is a standard against which investors can measure the performance of a security, an investment fund, or an investment manager. Because there are benchmarks representing almost every asset class, sector, and subsector, how does an investor understand what they are really looking at? The following are the most referenced benchmarks in the U.S.
Equities
Dow Jones Industrial Average (DJIA) – The Dow is a price-weighted stock market index of 30 large capitalization companies listed on U.S. stock exchanges. Companies contained in the DJIA can be described as blue chips because they are highly reputable and well-known, attract investor interest, and have sustained growth. Blue chips are often dividend-paying companies. The Dow does not track utility or transportation stocks.
S&P 500 – The Standard & Poor’s 500 (S&P) is a market-capitalization-weighted index that tracks the share prices of 500 of the largest U.S. publicly traded companies. Companies found in the S&P must have a market cap of at least $10M and represent one of 11 major industries. By following the performance of the S&P, investors can assess the health of the stock market and the entire economy.
NASDAQ 100 – The National Association of Securities Dealers Automated Quotations 100 tracks 100 of the largest and most actively traded non-financial domestic and international securities on the NASDAQ Stock Market. The NASDAQ 100 index is heavily weighted toward the technology sector.
Fixed Income
Barclays U.S. Aggregate Bond Index – The Barclays Agg is a broad measure of the U.S. investment grade fixed income securities market. Regardless of the types of U.S bonds an investor holds, the Barclays Agg is the benchmark comparison most widely used to track the bond market’s performance.
Investors concerned with the health of the general economy or various market segments can find answers by tracking the performance of an index. If the focus is on a stock or bond portfolio or total portfolio performance, using a benchmark index as a comparison can help investors understand how they are performing versus the market.
Kristin Hovencamp, CPWA® is an Investment Executive and Director of Business Development with HAZLETT WEALTH MANAGEMENT, LLC, which is independent of Raymond James and is not a registered broker/dealer. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. 675 Sun Valley Road, Suite J1 + J2 Ketchum, Idaho 83340 208.726.0605.
