How can you tell if an investment is performing well? Today, investors are becoming more sophisticated about investment indexes, which act as benchmarks against which investment performance can be judged. Investors can choose from a wide variety of indexes that represent just about every major type of investment available, from corporate bonds to foreign stocks.

Why do you need a benchmark? The answer is that youêre missing a lot if you just look at investment return in isolation. For example, letês say your broker tells you that you made 10% in your stock mutual fund last year. Most likely, you would be pleased. But if the overall stock market had risen 30% during the same period, your reaction would be entirely different! Conversely, if your mutual fund declined 5%, you may be pleased to learn that similar funds had declined an even greater 15%. By looking at your investmentsê returns in comparison to similar investments, then, you are in a much better position to judge their performance in the proper context.

Investment indexes have been created to allow a shorthand method of measuring relevant market performance, so that investors have a benchmark to judge an investmentês returns against. And, just as there are many markets, there are many indexes that represent them. The most commonly quoted investment index is the Dow Jones Industrial Index, which is composed of only 30 very large American companies. Today, we are beginning to hear media commentators quote other, lesser-known indexes. Here are a few additional indexes that may be of interest to you:

Standard & Poorês 500 Index À A fairly broad index, made up of five hundred stocks representing the largest companies in the United States. This index is most appropriate when used to evaluate the performance of the stocks of large, U.S. companies; NASDAQ Composite Index À An index heavily weighted toward technology companies, but that also includes stocks from other industries listed on the NASDAQ market; Russell 2000 Index À A broad index, representative of smaller U.S. companiesê stocks; EAFE (Europe, Australia and Far East) Index À An indicator of foreign stock performance; and Lehman Brothers Aggregate Bond Index À The broadest measure of bond market performance.

It is important to use the correct index or indexes in judging a portfolio's performance. It would not be useful to compare the performance of bonds in a portfolio by matching them against a stock index, for example.

Indexes allow you to gauge the performance of various investment markets, in much the same way that average real estate sale prices can give you an indication of real estate values in certain geographic areas. However, there are some subtle differences.

For example, unlike real estate values, which generally represent average or median prices, index values are normally weighted in accordance with the size of the issue (stock or bond) in relation to the overall size of its market. In other words, General Motors carries much more weight in the markets (and the indexes of which it is a part) than does a smaller company like Fluke Instruments.

The way to use indexes in evaluating your personal investments is to compare your investmentês performance against the best-fitting index or indexes. For example, if your portfolio consists of 50% blue-chip (large) U.S. stocks, 30% small company stocks and 20% corporate and government bonds, you might review your relative performance as follows:

Investment Index Your Return Index Return Evaluation Large Stocks S&P 500 11.5% 12% Decent Performance Small Stocks Russell 2000 12% 15% Under-performance Corporate Bonds Lehman Aggregate Bond Index 5.5% 5.25% Above-average return

As you learn to use indexes to judge your relative investment performance, youêll be in a better position to pick investments, or to discuss them intelligently with your financial advisor. After all, itês your hard-earned money thatês at stake, and it should be working hard for you.