May 5, 2026, 11:25 a.m. ET
For armchair investors and retirement savers, “diversification” has come to mean a lot more than buying both stocks and bonds.
And a “diversified” portfolio, in the 2020s sense of the term, did really well in 2025.
Morningstar estimates that a broadly diversified asset mix, comprising 11 investment classes, gained 18.3% in 2025.
That’s a better return than investors would have reaped by investing solely in U.S. stocks, which rose by about 17% on the year.
And it’s a much better return than Morningstar tracked with the “plain vanilla” 60/40 portfolio, a mix of U.S. stocks and investment-grade bonds. That blend delivered a return of 13.3% in 2025.
In an April report titled 2026 Diversification Landscape, Morningstar looks back on a year that delivered big returns to investors who diversified beyond a traditional mix of domestic stocks and bonds, especially for those who invested in gold and international equities.
Gold prices rose by nearly 70% in 2025, Morningstar reports. Non-U.S. stocks rose by more than 30%.
Last year “was kind of a banner year for international diversification,” said Amy Arnott, a portfolio strategist at Morningstar and one of the report’s authors.
‘Diversification’ means more than stocks and bonds
The investment community has been abuzz with talk of broadening the definition of diversification in investing.
The Trump administration has pushed for retirement savers to gain access to alternative investments, including private equity, real estate, commodities and cryptocurrency.
Investment experts have urged investors to look beyond American stocks and bonds and warned against over-reliance on the very largest stocks.
Vanguard, for example, has predicted that value stocks, small-cap stocks and some foreign stocks will outperform the Magnificent Seven growth stocks in years to come.
Definitions of a diversified portfolio have steadily broadened over the years.
The 60/40 rule evolved from the 1950s work of economist Harry Markowitz, Investopedia reports, on the theory that investors should diversify to balance risk and returns.
Half a century ago, a 60/40 portfolio might have included only U.S. stocks and bonds. Today, even casual investors have easy access to many more categories of stocks and bonds, domestic and international, as well as several other asset classes.
11 ingredients in a diversified portfolio
For its April paper, Morningstar built a diversified portfolio with these ingredients:
- 20% larger-cap U.S. stocks, representing the biggest companies
- 10% non-U.S. stocks in developed markets
- 10% non-U.S. stocks in emerging markets
- 10% U.S. Treasury securities
- 10% U.S. investment-grade bonds
- 10% global bonds
- 10% high-yield bonds
- 5% small cap stocks, representing smaller companies
- 5% commodities
- 5% gold
- 5% real estate investment trusts
Many of those asset classes had strong years in 2025: most notably, gold.
“Basically, people are buying it because they think it’s going to keep going up,” Arnott said. “And that’s definitely what we saw in 2025.”
Non-U.S. stocks in developed markets rose 33% in 2025. Emerging-market stocks surged 30%.
Foreign stocks did well, in part, because “the dollar was very weak in 2025,” Arnott said. A weak dollar enhanced returns on international stocks.
Is the 60/40 portfolio dead?
The paper seems to vindicate investors who diversified well beyond the traditional 60/40 portfolio.
Or perhaps not. The paper also notes that, over longer spans, the 60/40 portfolio has performed admirably. In fact, it has consistently beaten the “diversified” portfolio.
Over the past three years, the 60/40 portfolio has gained an average 15.4% per year, compared with 14% for the diversified portfolio. Over five years, the 60/40 has gained 8%, compared with 7% for the diversified portfolio.
“If you zoom out, the classic 60/40 portfolio has been really hard to beat over long periods of time,” said Michelle Crumm, a certified financial planner in Ann Arbor, Michigan.
Diversification “does matter,” Crumm said, “but more complexity doesn’t automatically mean that you’re going to have a better outcome.”
Are bonds making a comeback?
Many in the investing community have soured on the 60/40 portfolio – and on bonds, generally – in recent years. One reason is the events of 2022.
Bonds are supposed to provide a hedge against stocks. When stocks go down, bonds go up, or, at least, they don’t go down as much.
In 2022, the financial market seemed to turn upside down. Stocks lost 18.6% of their value that year, as measured by the S&P 500. And bonds lost 13.7% of their value, according to the Vanguard Total Bond Market Index. Inflation pushed that figure to 20%, the worst bond return in 97 years, according to a NASDAQ analysis.
Bond funds took a bath in 2022 because of rising interest rates and inflation. The year “was definitely a very painful experience for a lot of people,” Arnott said.
But bonds have returned to form, doing what bonds are supposed to do.
“In a week like the first week of April 2025, stocks were down about 9% but bonds were up about 1%,” Arnott said. “Overall, there were 25 weeks when stocks had negative returns in 2025, and investment-grade bonds had positive returns in 21 of those 25 weeks.”
Arnott does not suggest everyday investors need to diversify into 11 different asset classes. But she also doesn’t think an all-stocks portfolio would be wise for most investors.
“In reality, the average investor would probably want to be somewhere in between,” she said. “You don’t necessarily want to own commodities, gold and REITs, but you probably do want to have some exposure to non-U.S. stocks.”
And some bonds.
