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For most of the past 15 years, the simple portfolio looked like a genius plan. Just put 60% in U.S. stocks, 40% in bonds and rebalance once a year.
Then 2025 happened — and a more diversified mix beat the simple portfolio by 5%, the biggest margin since 2009, with assets most retirement accounts don’t have enough of (1).
This is one of the key findings of Morningstar's 2026 Diversification Landscape report.
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Portfolio strategist Amy Arnott (2) tested an 11-asset portfolio against the classic 60/40 mix and discovered that the diversified portfolio not only beat the old‑school mix by 5% last year, but continues to outperform in 2026, ahead of the simple portfolio by 3% as of April 14. (3)
Still, as Morningstar reveals, over the past 20 years, the plain‑vanilla 60/40 still wins on risk‑adjusted returns.
In other words, diversification isn't always better. Here's why 2025 was different, and what that means for how you build your portfolio right now.
Morningstar tested a diversified portfolio spread across 11 asset classes in specific proportions:
10% each in developed international stocks; emerging market stocks; U.S. Treasuries; U.S. core bonds; global bonds; high-yield bonds.
5% each in U.S. small-cap stocks; commodities; gold; real estate investment trusts (REITS)
The diversified portfolio returned 18.3% in 2025, compared to 13.3% for a basic 60/40 mix of U.S. stocks and investment-grade bonds (1).
According to Morningstar, three things drove 2025's result: a weakening dollar, more attractive international valuations and gold's surge. All three are connected to rising geopolitical uncertainty and global investors diversifying away from the U.S.-centric assets.
First, international stocks — the ones the classic 60/40 portfolio usually ignores — had a breakout year. As tracked by Morningstar Developed Markets ex‑U.S. Index, developed markets outside the U.S. jumped 32% (4), while U.S. stocks only gained around 18%.
A big part of that was that the U.S. dollar weakened 8% against other major currencies (5). For U.S. investors, if your foreign stocks rise in local‑currency terms, the falling dollar gives you an extra boost when you convert those foreign stock gains back into U.S. dollars.
Meanwhile, gold surged nearly 70% for the year, driven by central bank buying and investors seeking a safe-haven asset amid rising geopolitical tensions.
"People are buying it because they think it's going to keep going up," Arnott told USAToday (6). "And that's definitely what we saw in 2025."
Still, diversified portfolios don't always outperform. In fact, Morningstar found that over 20 years, the 60/40 portfolio generated better risk-adjusted returns than the diversified version.
From 2009 to 2024, U.S. stocks dominated with a 14.5% (1) annualized return, compared to a 7.6% annualized return for International equities. Holding foreign stocks that didn't keep up with U.S. equities dragged the average return of diversified portfolios down.
Another challenge with diversified portfolios is that in big market crashes, diversified assets can suddenly fall, so the protection you counted on can vanish when you need it.
So what should investors do right now? Arnott advises that investors keep things simple, even when diversifying their portfolio.
She recommends three core asset classes: U.S. stocks, international stocks and investment-grade bonds.
Arnott told CNBC (3) that international stock valuations still look more attractive than U.S. stocks. On the bond side, she recommends sticking to short- to intermediate-term maturities.
"In addition, a small commodity exposure could make sense if inflation continues to run above the 2% target," she added.
She advises against investing too much in gold, cryptocurrency or newer asset classes like private equity and private credit because the risks may outweigh the benefits.
A standard S&P 500 index fund gives you zero international exposure. For example, the Vanguard Total World Stock ETF (VT) (7) holds both U.S. and international stocks — roughly 60% domestic and 40% international.
The Vanguard FTSE Developed Markets ETF (VEA) (8) focuses on developed international markets, including Europe, Japan, Australia, and trades at lower valuations than U.S. equities.
Arnott says diversification doesn't have to be complicated.
"Even if you have a fairly simple approach of just building a portfolio focused on U.S. stocks, international stocks, and investment-grade bonds, that can take you pretty far from a diversification standpoint (5)," she said.
It also shows that the 60/40 portfolio isn't dead, it just needs a little diversification.
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Morningstar (1),(2),(4),(5); CNBC (3); USA Today (6); Vanguard (7),(8)
This article originally appeared on Moneywise.com under the title: A diversified 11-asset portfolio outperformed both US stocks, the classic 60/40 mix in 2025. Is it time to diversify?
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