In the ever-evolving world of investing, the concept of “diversification” has taken on a broader meaning, transcending the traditional boundaries of balancing stocks and bonds. Recent analysis from Morningstar reveals that a diversely constructed portfolio outperformed traditional investment strategies in 2025, with an estimated gain of 18.3% across 11 asset classes. This notably surpasses the performance of U.S. stocks, which rose approximately 17%, and the standard 60/40 portfolio of stocks and bonds, which returned just 13.3%.
Morningstar’s April report, titled “2026 Diversification Landscape,” highlights the benefits of diversifying beyond domestic stocks and bonds. Notably, gold saw an extraordinary increase of nearly 70% over the year, while international stocks also thrived, climbing more than 30%. Amy Arnott, a portfolio strategist at Morningstar, attributed 2025 as a “banner year for international diversification,” underscoring the advantages of looking beyond traditional U.S.-centric investments.
Investment discourse has increasingly emphasized the need for portfolios to include alternative assets. Under the previous Trump administration, initiatives were proposed to broaden retirement investors’ access to alternatives such as private equity, real estate, commodities, and cryptocurrency. Financial experts are encouraging investors to diversify their holdings, warning against undue dependence on a few large-cap stocks.
Historically, the traditional 60/40 portfolio, which originated from economist Harry Markowitz’s work in the 1950s, solely relied on U.S. stocks and bonds. However, the modern investment landscape now offers a wide array of asset classes easily accessible to investors at all levels. The diverse portfolio constructed by Morningstar was comprised of ingredients such as larger-cap U.S. stocks, non-U.S. stocks in both developed and emerging markets, U.S. Treasury securities, various bond types, commodities, gold, and real estate investment trusts (REITs).
Among these categories, gold proved to be particularly favorable. Investors flocked to it, perceiving its upward trajectory. Arnott noted that the performance of foreign stocks was bolstered by a weak dollar throughout 2025, which positively impacted returns from international equities.
Despite the strong performance of diversified portfolios in 2025, the classic 60/40 allocation should not be dismissed. The paper highlights that, over longer periods, this traditional portfolio model has consistently outperformed more diversified options. For example, over the past three years, the 60/40 portfolio averaged a return of 15.4% annually, while diversified portfolios yielded 14%.
While many investors have grown skeptical of the 60/40 model and bonds following a tumultuous 2022—where both stocks and bonds faced significant declines—there are signs of recovery. Bond markets performed as expected in 2025, offering positive returns even when stocks faltered. In fact, during one particularly rocky week, while stocks dipped by 9%, bonds appreciated.
While Arnott does not advocate for an excessively diversified portfolio with 11 different asset classes for the average investor, she believes that some degree of diversification is essential. She suggests that investors should typically avoid an all-stocks portfolio, advising instead for exposure to both non-U.S. assets and some bond investments.
