Ask the average mutual fund investor how well a portfolio is performing and you’re likely to get a variation of three basic answers: “Pretty well.” “Lousy.” “Just treading water.”

Ask a professional money manager and you’ll hear something like: “We outperformed (or trailed) the S&P by 200 basis points.”

In other words, while many individual investors rely on gut feelings to assess performance, the professionals use a benchmark. Without one, you just don’t know how you’re doing, and you’re more likely to make ill-informed decisions about buying, selling or holding firm.

So how do you pick a benchmark, and how do you track it?

The most commonly used benchmark is the Standard & Poor’s 500, which tracks the largest 500 U.S. stocks, providing a gauge of the overall stock market’s performance.

The S&P 500 is a good standard for comparison because anyone can easily match its returns by investing in an S&P 500 index fund or exchange-traded fund, offered by most fund companies and brokerages. The mutual fund company T. Rowe Price (Stock Quote: TROW), for example, offers the Equity Index 500 Fund (Stock Quote: PREIX) and there is a popular exchange-traded fund called the SPDR S&P 500 (Stock Quote: SPY).

If you own a mutual fund containing stocks of large U.S. companies, you know you’re doing relatively well if you do better than one of these index investments. If you’re trailing, you’d be better off with the indexer or something else that beats the benchmark.

But the S&P 500 is not the right benchmark to use if you have a fund with small-company stocks. In that case you could use the Standard & Poor’s 600 index, which tracks small stocks. For mid-sized companies you could use the S&P 400 index.

Then there are indexes which track stocks in specific industries, foreign countries or parts of the world like Europe, Asia and Latin America.
Figuring out the right index to use could be a headache, except that the fund companies do the work for you. Look up any fund on its company Web site and you’ll find data comparing the fund’s performance to the appropriate index. Similar information is offered on the site of fund-data company Morningstar Inc. (Stock Quote: MORN).

If you owned the American Century International Discovery Fund (Stock Quote: TWEGX), you could look it up on Morningstar and see that during the past three years it has trailed its benchmark.

Morningstar also compares each fund to the average of funds in its category, another useful benchmark.

If your fund isn’t doing as well as its index or category, think about trading it in for something better, even if has been profitable.

Generally, people investing for retirement, college or other long-term goals should look at performance over five- and 10-year periods, rather than shorter periods that can be volatile and misrepresentative. Of course, past performance does not predict the future.

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