Morningstar: Diversified Portfolio Outperforms Traditional 60/40 Allocation
Morningstar reports that a highly diversified portfolio, comprising 11 asset classes, outperformed the traditional 60/40 allocation in 2025, beating it by 5 percentage points. This trend of outperformance continued into 2026, where the diversified holdings led by 3 percentage points. Experts attribute this success to a weakening U.S. dollar, which boosted international equities and gold, alongside declining correlations among major asset classes. While the 60/40 model remains historically reliable over the long term, the report advises investors to prioritize international exposure and base their allocation on their personal risk tolerance and time horizon. Furthermore, volatile assets like gold and cryptocurrency should only constitute a small portion of the overall portfolio.
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A new Morningstar report indicates that a highly diversified portfolio, spanning 11 asset classes, significantly outperformed the traditional 60/40 allocation (60% US stocks, 40% US bonds) in 2025, a trend that continued into 2026.
Performance Metrics and Outperformance
According to Morningstar, the diversified portfolio achieved its best showing since 2009. The outperformance was notable across multiple years:
2025: The diversified portfolio beat the 60/40 split by 5 percentage points.
2026 (as of April 13): The diversified holdings maintained their lead, topping the traditional split by 3 percentage points.
Composition of the Winning Portfolio
The successful diversified portfolio is not a simple mix but is strategically allocated across 11 different asset classes. The breakdown includes:
Large-Cap Domestic Stocks: 20%
International Equities: 10% each (Developed and Emerging Markets)
Fixed Income: Treasurys, U.S. Core Bonds, Global Bonds, and High-Yield Bonds (10% each)
Diversifiers: U.S. Small-Cap Stocks, Commodities, Gold, and Real Estate Investment Trusts (5% each)
Key Drivers of Outperformance
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Portfolio strategist Amy Arnott attributed the superior performance to several macroeconomic shifts:
Weakening U.S. Dollar: The decline in the USD helped international equities perform strongly and contributed to the significant rise of gold.
Declining Correlations: The correlation between major asset classes has been trending downward. This reduction in correlation enhances risk mitigation when combining varied assets.
International Markets: International markets have shown a degree of de-linking from the U.S., which was noted amid geopolitical uncertainty and tariffs.
The Case for the 60/40 and Long-Term Strategy
Despite the recent outperformance of diversified models, Morningstar emphasized that the 60/40 allocation remains a robust strategy over the long term. Historically, the 60/40 portfolio has generated better risk-adjusted returns than an equity-only benchmark in approximately 80% of rolling periods since 1976.
However, Arnott advised that investors should focus on international exposure, noting that non-U.S. market valuations remain attractive, and that international markets are key to strengthening diversification.
Investor Recommendations
While the diversified model is complex to replicate, the report offers critical advice for individual investors:
Focus on Risk Tolerance: Investors should base their asset allocation on their personal risk tolerance and time horizon, rather than attempting to predict which asset class will perform best in a given year.
Manage Volatility: When adding volatile assets (like gold or cryptocurrency), exposure should be kept to a very small percentage of the overall portfolio.
Inflation Hedge: A small commodity exposure may be advisable if inflation remains above the 2% target.
Avoid Switching: Investors should avoid constantly switching between a 60/40 model and a widely diversified portfolio.
