Understanding Benchmarking in Performance Evaluation

Your client, a high-net-worth individual, has expressed interest in understanding how the performance of their investment portfolio is evaluated against relevant benchmarks. They have heard terms like 'benchmarking' and 'performance evaluation' but would like a clearer explanation.

In your response, explain the concept of benchmarking in the context of investment performance evaluation. Include a discussion on the importance of selecting appropriate benchmarks and the potential implications of using the wrong benchmarks. Be sure to provide specific examples of benchmarks that can be used for different types of investment portfolios.