A return without a benchmark is meaningless.
15 % sounds great until you discover the index returned 22 %. The benchmark question is the second-most-important question in performance attribution.
Why benchmark
An investor who returned 8 % in a year when the market returned 5 % beat the market by 3 percentage points. An investor who returned 8 % in a year when the market returned 12 % lagged by 4. The two outcomes feel identical from the bank statement; they are very different from a performance standpoint. Benchmarks make the difference visible.
The relevant question is not “did I make money” but “did I make money relative to what I could have done by buying the market.” The relevant comparison is to a low-cost index fund tracking the same broad asset class, because that's the cheap, easy alternative every investor has access to.
Choosing the right benchmark
- US large-cap equity portfolio. S&P 500 (or VOO/SPY for low-cost trackers).
- US total market. CRSP US Total Market or Russell 3000 (VTI tracks this).
- Global developed-market equity. MSCI World (URTH).
- Global all-country (including emerging). MSCI ACWI (ACWI).
- Emerging markets. MSCI Emerging Markets (EEM, VWO).
- Bonds (US aggregate). Bloomberg US Aggregate Bond (AGG, BND).
- Balanced 60/40. 60% S&P 500 + 40% Bloomberg US Aggregate, weighted average.
- Sector-specific (technology). NASDAQ-100 (QQQ).
- Real estate. FTSE NAREIT All Equity REITs (VNQ).
Long-run nominal annualised returns
| Index | Period | Annualised return | Standard deviation |
|---|---|---|---|
| S&P 500 | 1928–2024 | ~10.3% | ~18% |
| S&P 500 | 1980–2024 | ~11.4% | ~16% |
| S&P 500 | 2000–2024 | ~7.5% | ~17% |
| NASDAQ-100 | 1985–2024 | ~13.6% | ~24% |
| MSCI World | 1970–2024 | ~9.5% | ~16% |
| MSCI ACWI | 1988–2024 | ~7.8% | ~16% |
| MSCI Emerging Markets | 1988–2024 | ~9.0% | ~24% |
| Bloomberg US Aggregate | 1976–2024 | ~5.8% | ~6% |
| 10-year US Treasury | 1928–2024 | ~4.7% | ~9% |
| 3-month T-bills | 1928–2024 | ~3.3% | ~3% |
| FTSE NAREIT REITs | 1972–2024 | ~10.0% | ~17% |
| Gold | 1928–2024 | ~5.0% | ~17% |
Why the calculator uses 10% as the default
The S&P 500's long-run nominal return is approximately 10% across multiple sub-periods. For a US-based equity-leaning investor, this is the most defensible single-number benchmark. For non-US or balanced portfolios, override the default by computing a custom benchmark return (a weighted average of the relevant indices for your allocation) and feeding it into the comparison manually.
Persistence matters
A single year of beating the benchmark is luck-bounded. Persistent outperformance over 5+ years suggests skill, but is rarer than the financial-services industry implies: the SPIVA persistence reports consistently show that fewer than 5 % of equity managers who outperform their benchmark in a given 5-year window also outperform in the subsequent 5-year window. For most investors, the right strategy implication is index-tracking by default; active management when you have a specific reason to believe in a manager's edge.
How to use this with the calculator
Enter your investment data in the main calculator. The benchmark line will compare your annualised return against the 10% S&P 500 default. To compare against a different benchmark, recompute the calculator's output for the target benchmark rate and find the difference manually — or wait for the multi-benchmark feature scheduled for the v2 release.