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What is Benchmark used for?

Used as a reference in the market, the Benchmark is an extremely effective tool for entrepreneurs looking for innovations for their business, whether in the financial or administrative part.

Still, many are unaware of the concept and how it works. And here we explain better the importance and reference of the Benchmark and how it can be used.

What this article covers:

What is Benchmark?

Benchmark is a concept for comparing various assets, processes, mechanisms and other corporate factors. It is a reference index for making comparisons and, with the necessary studies, making choices based on what was presented.

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Some of the factors to be considered in the benchmark are profitability, risk and, obviously, the return that a given process can offer.

What is the function of the Benchmark?

Using an example, let’s say you own a business and want to make an investment. Through the benchmark, you can have options and make comparisons using the reference presented to make the best decision on where to invest.

Still with the benchmark, both the investor and his clients will be more aware of where their capital is being used, with the risks, profits and profitability available in the reference shown.

What is the difference between Benchmarking or Benchmarking?

Although they are terms with similar pronunciation, benchmark and benchmarking are completely different concepts?? While the first is more focused on the investment part, the second consists more of internal actions, identifying possible actions and projects to be taken internally in a company.

What does Benchmark mean in investments?

Using the benchmark strategy, many entrepreneurs use this benchmark to allocate their investments to the best choices and options for their company or company.

What does Benchmark mean in investments

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In this way, there are two benchmark focuses in investments, the so-called financial benchmark. The first focuses on comparing investments in fixed income and their performance, while the second focuses more on variable income.

Which Benchmarks are used for Fixed Income and Variable Income?

Currently, in Brazil, around five types of benchmark are used as references:

  • CDI: Interest rate charged on operations between institutions;
  • Selic Rate: Basic interest rate, equivalent to the risk-free rate for the economy;
  • Ibovespa: One of the main benchmarks for variable income, it indicates the performance of assets on the stock exchange, and can be separated into other indices;
  • Inflation: The constant increase in prices in an economy and the loss of currency value in this time;
  • Exchange rate: Rate based on the daily calculation made by the Central Bank, used for investments that use the currency as a basis.

Knowing how the financial Benchmark works and what its types are, it is easier for you to plan and start investing without fear.

How does Benchmarking work?

Going back to the example mentioned above, if you have capital that you want to invest. From this, the benchmark process begins, where it is necessary to evaluate several factors before making the investment.

At first, it is important to evaluate the reference, such as the type of investment to be made, its risk in the current market, and its profitability. Having these three points as a basis, the investor can also compare other options available for investing.

As well as starting, the benchmark also serves to assess whether an invested amount had a favorable return or not, using it as a reference to compare with other returns and, if you prefer, look for new strategies.

It is important that, during a benchmark, the investor knows how to separate which type will be used, thus not mixing something that is aimed at fixed income with a reference to variable income, after all, both markets present completely different situations.

In addition to these points, the investor must always take into account that the benchmark to be used as a reference is adequate and estimable to the value he wants to use, so as not to experience future problems on another occasion, or even to not get lost in future benchmarks. where this investment will be the reference.

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