Why I benchmark against the S&P 500

A return quoted on its own is close to meaningless. "I made 12%" sounds good until you learn the market made 20% that year, and it sounds excellent if the market made 4% — the number only has meaning next to an alternative. That alternative is a benchmark, and choosing a fair one is how you find out whether a strategy is actually adding anything. I benchmark against the S&P 500, and the reasons are worth spelling out, because the choice of yardstick is itself a discipline.

Why do you need a benchmark at all?

Because the real question is never "did I make money?" — it's "did I make more than I could have made effortlessly?" Every dollar you invest actively has an obvious, lazy alternative: put it in a cheap fund that simply owns the market and do nothing. If your hard work doesn't beat that, the work destroyed value, however positive the raw return looks. A benchmark turns a flattering number into an honest one by forcing the comparison you'd rather avoid.

Why the S&P 500 specifically?

Because it's the closest thing there is to "the market." It holds around 500 of the largest US companies across every sector, so it captures the broad performance of the American stock market in a single number, and more investor money is benchmarked to it than to any other index in the world. It is also cheap and easy to actually own — index funds tracking it charge as little as ~0.03% a year — which makes it a real, investable default, not a theoretical one. And because it's so widely followed, it's a yardstick other people instantly understand.

Why beating it is the whole job of active investing

If you can't beat the cheap default, you should be the cheap default — that's the entire logic. And beating it is genuinely hard: over the 15 years measured by the SPIVA scorecard, 92.2% of actively managed US large-cap funds underperformed the S&P 500. These are full-time professionals, and nine in ten still lost to the index after their fees. So the bar an active strategy has to clear isn't "make money" — it's "beat this specific, free, well-understood alternative, after all costs," which is exactly why it belongs on the scoreboard.

How I hold myself to it

By putting the comparison in public and keeping it there. The portfolio has been run in the open since 2020, every full year in profit, and the performance page plots its whole curve directly against the S&P 500 (and the Euro Stoxx 50, with more indices a toggle away) — the honest yardstick, not one chosen to flatter. The compound-interest calculator then shows what the gap between the two rates turns into over decades. That's the point of a benchmark: it's only useful if it can embarrass you. The deeper question of whether to try to beat the index at all is taken up in index funds or individual stocks.