If you walk into your bathroom and step on a scale, you generally have a number in mind that you expect the scale to read. If the number is higher than expected, you know that you are skipping dessert for the next week. If the number is lower, then you are one step closer to cinnamon rolls for breakfast.

It is human nature to make estimates and comparisons. Every day we evaluate our current environment against our expectations, then decide if we need to take any action. Colder than you thought outside? Time to turn on the heat and grab a jacket. When it comes to investing, the most common way investors evaluate the success or failure of their portfolio is through a benchmark.

A benchmark is typically a security index or a combination of indexes. The most commonly referenced benchmark for the United States is the S&P 500. Due to its popularity, most people are familiar with what the S&P 500 is and how it has performed over the past several months or even years.

Yet popularity alone does not mean that an index is an appropriate benchmark for a portfolio. Indexes have rules that determine why a security is or is not included. A common misconception is that the S&P 500 represents the 500 largest companies in the United States, making it a seemingly simple substitute for the overall US market. In reality, the S&P 500 is determined by a committee who take size, profitability, and trading volume into account.

Just as you would not weigh yourself with the food scale at your grocery store, you do not want to inappropriately use a benchmark for your portfolio. Benchmarks should serve as guides, like the lane markers on the road. A portfolio that is drifting away from a common benchmark may be purposely merging from the highway to a back road due to construction ahead.

Rather than defining investment success or failure of an entire portfolio against an index, the success of a portfolio should be viewed against a stated goal, over an appropriate time horizon, and within an acceptable range of risk. While benchmarks serve as an informative guide along the way, particularly for asset classes, they are not the only feedback an investor should use. Likewise, investors should use caution to make sure that they are on the appropriate scale for their situation.