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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).

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This is one of the key findings of Morningstar’s 2026 Diversification Landscape report.

Morningstar 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 mid-April, reports CNBC (2).

Still, as Morningstar reveals, over the past 20 years, the plain‑vanilla 60/40 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:

20% in large-cap U.S. stocks

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.

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 U.S.-centric assets.

First, international stocks — the ones the classic 60/40 portfolio usually ignores — had a breakout year. As tracked by Morningstar Global Markets ex‑US Index, markets outside the U.S. jumped 32%, while U.S. stocks only gained around 18%.

A big part of that was that the U.S. dollar weakened over 9% against other major currencies (3). 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, reports Morningstar.

“People are buying it because they think it’s going to keep going up,” Morningstar portfolio strategist Amy Arnott told USA Today (4). “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% 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.

Read More: Here’s the average income of Americans by age in 2026. Are you falling behind?

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 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, she noted that a small commodity exposure could make sense if inflation continues to run above the 2% target.

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. But the Vanguard Total World Stock ETF (VT), for example, holds both U.S. and international stocks — roughly 60% domestic and 40% international (5).

And the Vanguard FTSE Developed Markets ETF (VEA) focuses on developed international markets, including Europe, Japan and Australia, and trades at lower valuations than U.S. equities (6).

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,” she said (7).

It also shows that the 60/40 portfolio isn’t dead — it just needs a little diversification.

Still, unless you’re a finance guru, it can be overwhelming to choose the individual investments that make the most sense for your situation.

That’s where expert insights can be a game-changer.

Moby offers expert research and recommendations to help you identify strong, long-term investments backed by advice from former hedge fund analysts.

In four years, and across almost 400 stock picks, their recommendations have beaten the S&P 500 by almost 12% on average. They also offer a 30-day money-back guarantee.

Moby’s team spends hundreds of hours sifting through financial news and data to provide you with stock and crypto reports delivered straight to you. Their research keeps you up-to-the-minute on market shifts and can help you reduce the guesswork behind choosing stocks and ETFs.

Plus, their reports are easy to understand for beginners, so you can become a smarter investor in just five minutes.

Once you’ve got your eye on some appealing investments, it’s time to make your move. And if you’re ready to move beyond a traditional portfolio, you may want to focus on options that allow you to invest in alternatives — like a self-directed account with IRA Financial.

IRA Financial gives you the freedom to invest in alternative assets like real estate, private equity, precious metals and crypto within a self-directed retirement account. And now you can add real-time, public market investing powered by Interactive Brokers, a trusted global brokerage.

For the first time, you can manage both traditional and alternative assets seamlessly within a single self‑directed retirement structure, all for a flat fee.

Complete the application online in minutes to open your self‑directed retirement account with stock trading access powered by Interactive Brokers.

Something is missing from traditional portfolios.

As evidenced by Morningstar’s diversification report, in a period of heightened market volatility, stocks and bonds alone may be less reliable for consistent long-term growth.

And as alternative investments become more accessible and attractive, more investors are seeking smarter ways to diversify.

Now, Masterworks is offering a simple way to do that with a single investment that combines blue-chip art with other scarce assets, such as gold and bitcoin, which have historically moved independently of equities and of one another.

The result is a more balanced, all-weather approach to alternative investing. In fact, this model would have outperformed the S&P 500 by 3.1x from 2017 to 2025.*

By leveraging access to museum-quality artwork alongside other uncorrelated assets, the strategy aims to enhance diversification while still pursuing meaningful appreciation.

Discover how diversifying with this strategy can strengthen your portfolio for the years ahead.

*Investing involves risk. Past performance is not indicative of future returns. The 3.1x figure reflects a model backtest, not actual fund performance.

— With files from Godwin Oluponmile

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We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.

Morningstar (1), (7); CNBC (2), NPR (3); USA Today (4); Vanguard (5), (6)

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.