A new report from Morningstar Portfolio and Planning Research finds that the basic 60/40 portfolio not only fared better than a stocks-only benchmark about 83% of the time since 1976, but also came out ahead of a more broadly diversified portfolio every rolling 10-year period since early 2005.
The 2025 Diversification Landscape report also reveals that the plain-vanilla version of a 60/40 portfolio (made up of US stocks and US investment-grade bonds) gained about 15% in 2024, while diversifying into other asset classes generally led to lower returns.
The report’s introduction notes that the more asset classes in a portfolio, the more likely it is to reduce market volatility—but also potentially returns. Though a classic 60/40 portfolio enjoyed those 15% gains last year, the macroenvironment is different this year. With 2025 presenting economic and market uncertainty, the report says portfolio diversification is ever-critical to withstand any market condition.
Morningstar’s report on portfolio diversification analyzes the diversification benefits of adding different asset classes and styles to portfolios, the relationship between risk and diversification, historical considerations and long-term trends, strategies for building a diversified portfolio, and more. It was authored by Morningstar’s Amy C. Arnott, Portfolio Strategist; Christine Benz, Director of Personal Finance and Retirement Planning; Jason Kephart, Senior Principal, Multi-Asset Strategy Ratings; and Karen Zaya, Associate Director, Multi-Asset and Alternative Strategies.
Additional highlights from the report include:
• In periods of rising interest rates or above-average inflation, Treasuries and other high-quality bonds would likely be less reliable diversifiers, although they still have merit as core portfolio holdings. As interest rates have trended up in recent years, cash has diversified portfolios better than Treasuries.
• During recessionary periods, stocks frequently contract, while high-quality fixed-income assets often serve as a boon to portfolios. That is largely due to lower yields and investors’ desire for the stability and safety of fixed income and cash assets during periods of economic turbulence, both of which boost bond prices.
• While private investments remain a potential source for greater breadth and differentiated return streams, their inherent lack of liquidity makes them impractical for investors planning to fund a goal at a specific point in time.
• International stocks fell behind the US market again in 2024, and both rising correlations and weak longer-term performance over the past 10 to 15 years might have some investors questioning whether international diversification is still worthwhile. Over longer periods, though, non-US stocks don’t always move in lockstep with the US market and have still provided diversification benefits.
• Over the past 20 years several asset classes—including corporate bonds, global bonds, high-yield bonds, municipal bonds, REITs, and Treasury Inflation-Protected Securities—have become more closely correlated with stocks. Many of these categories have also posted losses in periods of equity market stress. In such periods, Treasury bonds, gold, commodities, and some alternative investment strategies have been more compelling portfolio diversifiers.
• Diversification strategies that have worked in the past may not work in the future. The major shifts in US tariff policy announced in April 2025 have added massive levels of uncertainty to the investment landscape, potentially upending many previously established performance patterns.
“The major changes in US tariff policy, which were still in flux as of April 2025, have also added significant uncertainty to the investment landscape,” the report’s conclusion states. “If the ‘Liberation Day’ policies are enacted as originally envisioned, they would fundamentally shift the global economy from one that embraces free trade to a regime of fragmented, adversarial relationships defined by a limited set of economic goals focused on reducing the trade deficit and protecting US industry. This regime change has the potential to upend many previously established performance patterns.”
Even so, the conclusion adds that basic arguments in favor of diversification still hold. Even as stock/bond correlations have moved higher, they’re still low in absolute terms. The diversification case for adding bonds to a portfolio remains intact, even if some conditions for fixed-income holdings are less favorable than in the past.
The conclusion also notes that holding a variety of asset classes helps guard against being overly exposed to an area that falls out of favor, and holding a diversified portfolio helps investors expand the opportunity set and ensure they do not miss out on areas that can enhance long-term returns, such as international stocks.
Access Morningstar’s 2025 Diversification Landscape report here.
SEE ALSO:
• BlackRock’s Fink: Democratize Investing by Expanding Access to Private Markets
• 2025 Morningstar Conference to Tackle Alternative Investments, Value Creation
• Morningstar Launches PitchBook Buyout Replication Index
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.