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Finance For Dummies

Finance For Dummies offers personal finance information on investing, retirement investing, finance, insurance, credit cards, loans and more. Personal finance education is our goal.

Friday, July 07, 2006

Russell Indices and Stock Market Benchmarking

Recently Russell reconstituted their indices. Their indices are some of the best benchmarks out there to compare a specific slice of the stock market to. If you have a mutual fund, portfolio of money managers or individual stocks look at their statistics compared to a specific Russell index it is benchmarked against. Is it at the correct risk level compared to its benchmark? Is it providing better performance than the benchmark? These are important ways to evaluate your holdings.

Another benefit is that you can verify what you own is benchmarked correctly. Often times companies will either benchmark themselves against a friendly index or influence decision makers (at a brokerage firm) to benchmark them kindly so their performance looks better than it really is. If a small cap portfolio is benchmarked against the S&P 500 you know there is a problem because the S&P 500 is a measurement of the top 500 companies (according to capitalization) and is the polar opposite of a small cap portfolio.


Click here for a list of indices that reconstituted and what companies make up that index. It is a great learning tool to look up an individual company and learn why Russell lists it as it does. Also, you can learn what criteria Russell requires for a company to be listed in a specific index.

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