Wealth ManagementPersonal FinanceStock Investing

The Portfolio That Has Been Beating the Classic 60/40, and Why It Matters for You.

Morningstar
Morningstar•Jun 5, 2026

Why It Matters

A truly diversified portfolio delivers higher returns and lower volatility than the classic 60/40, helping investors navigate inflation, market shocks, and shifting global correlations.

Key Takeaways

  • •Diversified portfolio outperformed classic 60/40 by 5% in 2025.
  • •Commodities and emerging markets delivered ~26% gains year‑to‑date.
  • •International stocks beat US equities, aided by weak dollar and lower valuations.
  • •Bonds provided positive returns in 21 of 25 weeks of stock declines.
  • •Crypto, sector funds, private equity offer limited diversification versus higher risk.

Summary

The Morningstar 2026 Diversification Landscape Report, discussed on Invest Insights, shows a broadened portfolio beating the traditional 60/40 mix. By adding small‑cap, international equities, high‑yield bonds, gold and commodities, the test portfolio returned roughly 18.5% in 2025, outpacing the vanilla 60/40 by five percentage points. Key data points include commodities and emerging markets up about 26% YTD, international stocks gaining 15% versus 12% for US equities, and gold soaring 70% in 2025. Bonds proved defensive, posting positive weekly returns in 21 of the 25 weeks when stocks fell, smoothing overall volatility. Correlation between US and international equities has fallen below 0.7, enhancing diversification benefits. Amy Arnott highlighted that the dollar’s weakness and lower valuations drove international outperformance, while noting crypto’s volatility erodes its diversification value. She cautioned against sector funds, private equity, and private credit for typical investors due to cost, liquidity, and timing risks. The findings suggest investors should broaden core holdings to include global equities, diversified fixed income, a modest cash buffer, and selective real assets, while steering clear of high‑volatility or illiquid alternatives. Such a mix can improve risk‑adjusted returns and protect against inflation‑driven cash erosion.

Original Description

#PortfolioDiversification #60/40 portfolio #Inflation
Plus, one of the biggest challenges to portfolio diversification today.
Don't underestimate the benefits of portfolio diversification. A well-diversified portfolio can ride waves of market volatility, and new Morningstar research found that's what happened in 2025. When uncertainty emerged at times during the generally bullish market, the report identifies which asset classes performed well, which didn't, and how the classic 60/40 portfolio fared. So, what are the biggest challenges for portfolio diversification today? Amy Arnott is one of the co-authors of the 2026 Diversification Landscape Report.
Why Portfolio Diversification Has Paid Off—but More Isn’t Always Better
On this episode:
00:00:00 Welcome
00:00:49 Market trends shaping investor sentiment in 2026
00:01:57 Leading and lagging asset classes year to date
00:02:45 Inside Morningstar's 2026 Diversification Landscape Report
00:03:41 60/40 vs. diversified test portfolio and how each performed
00:06:38 Rising inflation and what it means for bonds
00:09:48 How retirees and risk-averse investors can manage volatility
Watch more from Morningstar:
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This episode is sponsored by Vanguard: https://advisors.vanguard.com/engagement/fixed-income

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