Are stock market investors following the right numbers?
A benchmark should offer…
The FTSE 100
The FTSE All-Share total return index
What is total return?
Price versus total return
Other benchmark challenges
For example, many of the emerging market indices are dominated by certain countries and sectors. Like their better known peers, they also tend to use market capitalisation to measure performance, taking the view that big is best. This isn’t always wise as it can lead to a “buy high, sell low” approach.
The key takeaway here is that the biggest and best-known indices are not always the best. Choosing the right one may need some careful thought where a portfolio is complex. The final choice also needs to take account of variables, such as the decision over whether, or not, to reinvest income.