When using performance benchmarks, what should investors primarily focus on?

When using performance benchmarks, investors should primarily focus on relative performance comparison. This approach allows investors to assess how well their portfolio is performing in relation to a specific benchmark or index. It enables them to measure their investment performance against a standard that reflects the broader market or a particular segment of it.

Relative performance comparison provides insights into the effectiveness of investment decisions by highlighting whether a portfolio is outperforming or underperforming in the context of market movements. It is especially important for active managers who aim to generate higher returns than the benchmark through strategic investment choices. By focusing on relative performance, investors can better gauge the success of their investment strategies and make informed decisions about their asset allocation.

In contrast, minimizing transaction fees, ensuring absolute returns, or solely concentrating on the number of investments held are less relevant when evaluating investment performance against a benchmark. While these factors may influence overall investment strategy and costs, they do not provide the same level of insight into how well an investment is performing relative to the market, which is the primary purpose of using benchmarks.