This portfolio allocation is outperforming the 60/40, says Morningstar
These days, it pays to have a diversified portfolio that goes beyond a “plain vanilla” 60/40, according to a new Morningstar report . The financial services firm’s portfolio of 11 different asset classes beat an allocation of 60% U.S. stocks and 40% high-quality U.S. bonds by 5 percentage points in 2025. It was the best showing for a diversified portfolio since 2009, said Amy Arnott, a portfolio strategist at Morningstar. That outperformance continued into 2026, with the diversified holdings topping the traditional split by 3 percentage points, as of April 13, she told CNBC. The winning portfolio is broken down into 20% large-cap domestic stocks, 10% each to developed and emerging market equities, Treasurys, U.S. core bonds, global bonds and high-yield bonds. Another 5% each goes into U.S. small-cap stocks, commodities, gold and real estate investment trusts. A big reason for the outcome was the weakening U.S. dollar, which helped international equities trounce U.S. stocks and contributed to gold’s meteoric rise last year, Arnott said. “We started to see some cracks showing in the narrative for U.S. exceptionalism and people started to lose confidence in the dollar,” she explained. Correlations for several major asset classes have also been declining, which improves the risk reduction from combining the variety of assets, she added. For instance, international markets de-linked from the U.S. amid tariffs and geopolitical uncertainty, she said. Bonds also held up relatively well in 2025, she added. “After they had such painful losses in 2022, people were starting to question bonds as portfolio diversifiers, but they did kind of return to form in 2025,” she said. The case for the 60/40 That said, the 60/40 is “pretty hard to beat” over the long term, Arnott said. The portfolio of 60% domestic equities and 40% high-quality U.S. bonds topped its broadly diversified counterpart over most of the past 20 years. It also generated better risk-adjusted returns than an equity-only benchmark in about 80% of the rolling periods going back to 1976, according to Morningstar. “If you’re an average individual investor, if you just have exposure to U.S. stocks, international stocks, and investment grade bonds, that can really take you pretty far in terms of portfolio diversification,” Arnott said. “You don’t necessarily need to add a lot of additional asset classes beyond that.” The key is adding that international exposure to the portfolio, which is not included in Morningstar’s “plain vanilla” one. “The fact that correlations for international markets have been trending down actually makes the case stronger for investing outside of the U.S.,” she said. “Despite the fact that international stocks had such a strong runup in 2025, I think the valuations in a lot of non-U.S. markets are still looking more attractive.” She would also stick with short- to intermediate-term maturities for fixed income. What to consider Investors should also consider the volatility of some of the assets that are used to diversify portfolios beyond the 60/40. “In some asset classes that people often turn to for diversification, like gold or cryptocurrency, over the past few months, we have seen the downside of those asset classes as well,” she said. ” If you are going to add a more volatile asset class like gold or cryptocurrency … keep that exposure a very small percentage of your overall portfolio.” In addition, a small commodity exposure could make sense if inflation continues to run above the 2% target, she noted. While the Morningstar diversified portfolio isn’t simple for investors to replicate on their own, Arnott said a target date fund should do the trick. The one thing investors shouldn’t do is bounce between a 60/40 and a widely diversified portfolio. “You’re usually better off choosing an asset allocation based on your risk tolerance and time horizon, instead of trying to predict which asset class is going to do well in any given year,” Arnott advised.
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