The purpose of a benchmark is to reflect the performance of specific asset classes or funds. Any benchmark you choose should have the following five characteristics:

1. The benchmark should be constructed according to objective rules, not subjective judgments. There should be specific reasons for why each asset is included in the benchmark.
2. The benchmark should consistently weight its holdings according to its chosen weighting method. Choose benchmarks that use a weighting method you agree with.
3. The benchmark should feature overlapping buffer zones at the cutoff points between large-, mid-, and small-capitalization holdings. It is a bad sign if many holdings in the benchmark are considered small-cap stocks one day and mid-cap stocks the next day due to changes in the market.
4. The benchmark should use variety of factors to determine whether a stock is a growth stock or a value stock. The benchmark should have buffer zones to prevent assets from changing their status daily.
5. The benchmark should gradually and carefully rebalance its holdings to reflect market changes. This rebalancing should take place infrequently—once a year at most.