Arbitrary, unrelated and irrelevant.....there they are three reasons. Now let's take a closer look at the rest of the story.
Comparing your investment portfolio performance to something has been around a long time.
Many people use an index as a benchmark, comparing their portfolio to let's say the S&P 500 Index or the Dow Jones Industrial Average. Those are ok choices, but they're more or less meaningless in the real world. You might as well be comparing your portfolio to the performance of your colleague in accounting.
- Arbitrary- any benchmark you pick is of your own choosing, there's no real way to tell which benchmark is better for you than any other. What about the EAFE Index, or the Russell 2000 Value or Russell 1000 Growth Index, why not them? (Other than the fact that those are a bit harder to get data on, but that doesn't mean that they might not be better does it? Gold is harder to find than wood and that's worth more right?)
- Unrelated- depending on your holdings, the benchmark you pick might be totally unrelated, especially if you don't have any real idea of what it is that you own, beyond a Morningstar or Lipper style designator. What about style attribution, doesn't that matter? If you own a derivative laden large company growth fund, guess what, it's not a large company growth fund is it, if the fund's leveraged to the moon, it's more like a micro-cap fund than a large company growth fund, albeit that the fund company would prefer you continue to think about them as "large company growth" especially when they out-perform their peers by 8%! (Oh, did I mention that that 8% out-performance comes at 200% of the risk?)
- Irrelevant- ahhhh, saving the best for last. The benchmark that matters most to you is the one that is "all" about you. How much do you need to earn on average so that the net present value of your [a] future income streams such as your pension, social security, annuity payments, etc., plus the net present value of your investment assets and cash, exceeds by some meaningful amount to you, the net present value of all your future spending? That's the number that matters most, because that's the number that gets you to the finish line.
If your goal is your future then your benchmark should be your benchmark. Not mine, not The Wall Street Journal's and certainly not Harry's in accounting.
If, in the future, you're forced to stop going on vacations, or trading down out of your house or not being able to throw the kids a couple thousand a year for the extras that they need but can't afford, it won't matter much that you outperformed the S&P 500 will it?
No, it won't because it wasn't your performance that let you down, it'll be the fact that you didn't invest enough....something that comparing your portfolio to a benchmark other than your own can't possibly tell you can it?
If they're your goals, and it's your life, make that your benchmark.