A benchmark is a standard against which investment performance is measured. For example, the S&P (Standard & Poor's) 500 Index, which tracks 500 major U.S. companies, is the standard benchmark for large-company U.S. stocks and large-company mutual funds.

Why does this matter?
Comparing your investments to a benchmark gives you one unbiased way to determine how they're doing. Benchmarks can also be helpful when evaluating the performance of or value added by a securities professional, such as a mutual fund portfolio manager.

Compare apples to apples.

An index that tracks a specific investment category serves as the benchmark for investments that are part of that same category. It's not very helpful, for instance, to use a large-company stock index like the S&P 500 Index to compare the performance of a portfolio that contains mostly bonds.