You should periodically evaluate how your investments are performing--at least once a year or when you experience a significant life change (i.e. get married, start a family, change jobs, move, etc.). One approach that money managers use to evaluate their clients’ investing success is to compare their performance to a benchmark. The phrase “benchmark” originally described the mark a surveyor made to indicate a specific height above sea level. In today’s investment world “benchmark” refers to an objective measure that you select - such as an index - that you can use as a point of reference in evaluating how each asset class of your investment portfolio has performed. An index is a collection of stocks or bonds; the periodic measure is an average of what happened within the index.
One well known index used as a benchmark for stocks is the Dow Jones Industrial Average (DJIA) which is the composed of the weighted price average of 30 actively traded blue chip companies. You can find index benchmark information in the finance or business sections of newspapers and online at most of the top financial websites.
At least once a year you can measure the returns of your investments against those of an index that most accurately reflect the components of your investments. You want to be sure that you are using a benchmark that compares similar types of investments. If the performance of your investments are as good or better than the benchmark, you can consider yourself on track. But if the performance of your investments is worse than the benchmark, you might have to change the investments in that asset class.
Successful investing requires that you keep building your skills and educating yourself on the subject. Use online resources – at home or at your local library – to research questions you have and investment opportunities you’re interested in. Read investing-oriented publications, talk with staff at your bank or credit union, and attend lectures or seminars held by investment professionals (checking on their credibility of course). Don’t be afraid to ask questions to keep asking until you get the answers you understand.