# What a benchmark is, and how to pick the right one

> Learn what an index, an index fund and a benchmark are, and why the wrong yardstick misjudges a fund, with 10 years of real ETF data.

Data as of Nov 11, 2026. Rebuilt every trading night.

## What a benchmark is, and how to pick the right one

Data as of Nov 11, 2026. Rebuilt every trading night.

Over the 10 years to Oct 30, 2026 , AOR, a 60/40 ETF, returned 8.11% a year, against 8.09% for ETFIQ's 60% stock benchmark (hypothetical).

Build a Simple Portfolio · Lesson 3 of 6 1 2 3 4 5 6

Set an amount. See AOR against its matched benchmark and an all-stock benchmark over ten years. Amount (hypothetical) $10,000 All stocks (benchmark) AOR Strategic 60 (matched) $10,000 from Nov 2016 to Oct 2026: All stocks (benchmark) $32,075, AOR $21,810, Strategic 60 (matched) $21,772. Hypothetical amount. Benchmark mixes are ETFIQ rule results on past prices, Oct 31, 2016 to Oct 30, 2026.

### The question

A fund says it returned 8% a year. Is that good? Compared with what?

### The idea

- A return means little alone. You judge it against a benchmark : the yardstick a fund is measured against, ideally a simple, low-cost alternative holding the same kind of things. The right benchmark answers one question: did this fund do better or worse than the plain version of itself?

- Two cases: - An index is a list of holdings picked by fixed rules, such as the S&P 500. An index fund holds everything on its index, at the index's weights, so its benchmark is that index.

- For a fund that mixes things, the benchmark is a matching mix.

- Measure a stock and bond fund against stocks alone, and you are judging a swimmer by a runner's time.

### Worked example

AOR is an ETF from iShares that keeps about 60% in stocks and 40% in bonds. Reading through to everything it holds, ETFIQ finds 61.1% in stocks.

Follow $10,000 from Oct 31, 2016 to Oct 30, 2026 against two yardsticks. (As in lesson 1 , the benchmark years before October 2026 are hypothetical.)

| | 10-year total return | $10,000 became | A year |
| --- | --- | --- | --- |
| AOR | +118.10% | $21,810 | +8.11% |
| Yardstick A: ETFIQ Global Stocks (100% stocks) | +220.75% | $32,075 | +12.36% |
| Yardstick B: ETFIQ Strategic 60 (60% stocks, 40% bonds) | +117.72% | $21,772 | +8.09% |

Against yardstick A: $32,075 − $21,810 = $10,265 behind . A year: 8.11 − 12.36 = 4.25 points behind . AOR looks like a poor fund.

Against yardstick B: $21,810 − $21,772 = $38 ahead . A year: 8.11 − 8.09 = 0.02 points ahead . AOR did what a plain 60/40 mix did.

Same fund, same ten years, opposite verdicts. Only yardstick B holds what AOR holds. The gap against A is not AOR's failure; it is the 40% in bonds that AOR is built to hold.

(A "point" is a percentage point: 8.11% minus 8.09% is 0.02 points.)

### The common mistake

"Every fund should be compared with the S&P 500." Only a fund that holds large US companies should. A bond fund, a 60/40 fund or a gold fund has a different job, so the S&P 500 tells you about the market, not about the fund.

You will see broad indexes in official places too. US rules require a fund's yearly report to show a broad market index, and AOR's uses a world stock index, also shown on its ETFIQ fund page. That tells you how AOR did against the market. To judge AOR itself, use the matched 60/40 mix, as the ETF Models pages do.

A second trap is picking the yardstick after seeing the results. Choose it from what the fund holds, before you look at returns.

### Check your understanding

Pick an answer to see why. Two of three right passes the lesson.

1. What makes a benchmark the right one for a fund? A It had the highest return B It holds the same kind of things the fund holds C It is the S&P 500 D It comes from the same company Answer: B. It holds the same kind of things the fund holds. A benchmark is the plain version of the fund, so it must hold what the fund holds. Not C: the S&P 500 only fits funds of large US stocks. 2. AOA holds about 80% stocks and 20% bonds. Over ten years it returned +164.06% . Which comparison tells you how AOA did? A ETFIQ Global Stocks, +220.75% B ETFIQ Strategic 80, +165.23% C A cash fund D AOR, a 60/40 fund Answer: B. ETFIQ Strategic 80, +165.23% . Strategic 80 holds the same 80/20 mix, so the small gap (about 1.2 points over ten years) is AOA's own result. Not A: AOA would trail all stocks by design, because a fifth of it is in bonds. 3. An index fund's benchmark is usually: A The index it copies B The best fund in its category C Inflation D Cash Answer: A. The index it copies. An index fund aims to match its index, so its index is the fair yardstick. Not B: comparing with the top performer, picked after the fact, makes almost everything look bad.

### Takeaways

- Never judge a return alone: ask "compared with what?"

- Pick the yardstick from what the fund holds, not from what did best.

- Before trusting any comparison, check that the benchmark named beside the number holds what the fund holds.

### Do it on ETFIQ

Put your own fund up against its benchmark Your fund

### Where to next

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Source: ETFIQ, independent ETF data. Recomputed nightly from public filings and prices.
Cite: ETFIQ, What a benchmark is, and how to pick the right one, data as of Nov 11, 2026. https://etfiq.com/academy/build-a-simple-portfolio/index-funds-and-benchmarks/
Licence: https://etfiq.com/license/ Data ETFIQ computes is free to use with attribution: ETFIQ (etfiq.com). Issuer data stays under its owner's terms.
HTML: https://etfiq.com/academy/build-a-simple-portfolio/index-funds-and-benchmarks/