Important investing benchmarks
For investors the general consensus is that the results of your portfolio’s performance are judged against the S and P 500, and in some cases the total returns of the stock market as a whole.
The S and P 500 are the 500 largest market leaders in the stock market. These companies aren’t necessarily the biggest, but they are all extremely influential and are based on many criteria. Generally investors like to compare their performance to the S and P 500 because it excludes many of the poorer performing companies that exist in generally in the market. This index also changes year to year to as companies fall out of the S and P. While this benchmark uses large companies it doesn’t take into account medium and small companies that are growing. For most investors investing in the S and P usually involves buying an index fund of all 500 companies. For cash flow or dividend investors they often use the S and P 500 index to find companies to invest in.
The total stock market is very different than the S and P 500. Unlike the S and P 500, the total stock market measures literally the entire stock market. This includes small, medium, and large market cap companies. Generally investors invest in this to take gains from small and medium capitalized companies so that they do not have to invest in them directly, as they try to lower the risk. Generally like S and P the total…
