Here's the portfolio allocation that's held up amid market volatility

CNBC

24-04-2025

In this turbulent market, it pays to have a diversified portfolio, according to Morningstar. The financial services firm looked at the performance of different portfolio allocations over the years and found that in 2025 so far, its diversified portfolio has outperformed a "plain vanilla" split of 60% U.S. stocks and 40% high-quality U.S. bonds, as well as an all-stock portfolio. Equities have had a rocky year, thanks to the back and forth over President Donald Trump's tariffs and concerns about inflation. Stocks rose on Thursday, but the S & P 500 , Dow Jones Industrial Average and Nasdaq Composite are all lower since Trump announced his tariff policy on April 2. The outperformance of the diversified portfolio, which consists of 11 different asset classes, is bucking the trend that saw the basic 60/40 get higher returns in recent years, Amy Arnott, portfolio strategist at Morningstar, told CNBC. The only strategy performing better so far this year is a core bond portfolio, the data show. "The 60/40 portfolio has been a very reliable way to improve risk-adjusted returns over time, but I will say that because of all the turmoil that has been going on so far in 2025, we know that trend has reversed to some extent where, at least so far this year, the more diversified version has fared better," Arnott said. Year to date, the diversified portfolio has gained nearly 1%, while the basic 60/40 lost 5%, Morningstar found. The former still has 60% in risk assets and 40% in fixed income, but branches out beyond U.S. large-caps and investment-grade fixed income. Holdings include international stocks, real estate investment trusts and gold. The fixed income allocation is also varied. "Some of the asset classes that have been working the best are gold, which is up roughly 26% so far this year, and commodities, real estate and global bonds have also fared relatively well," Arnott said. "Stocks outside of the U.S. have done significantly better than stocks in the U.S., and we've seen large-cap value stocks pull ahead of more growth-oriented stocks." The outperformance is a change from last year, when the basic 60/40 gained about 15%, compared with 10% for the wide-ranging strategy. The 60/40 also improved risk-adjusted returns versus an all-stock benchmark in more than 83% of the rolling 10-year periods going back to 1976, according to Morningstar's research. AOR .SPX YTD line iShares Core 60/40 Balanced Allocation ETF vs. S & P 500 For equities, the basic 60/40 portfolio uses the Morningstar U.S. Market Index , which measures the performance of large-, mid- and small-cap stocks but is heavily weighted with companies that have "large" or "giant" market capitalizations. The Morningstar U.S. Core Bond Index , which is composed of investment-grade assets like Treasurys, corporate bonds and securitized products, is used for the fixed-income portion. Here are some of Morningstar's top-rated core bond funds . The more varied strategy has struggled over longer periods during the past two decades because while it reduced risk compared with the plain portfolio, it wasn't enough to result in better risk-adjusted returns, Arnott said in a note Tuesday. "The major shifts in US tariff policy announced in April 2025 have also added massive levels of uncertainty to the investment landscape, potentially upending many previously established performance patterns," she wrote. Still, investors can build diversified portfolios without venturing too far from the basic portfolio, Arnott said. "If you're a long term investor, you definitely want to have some level of diversification, especially into stocks outside of the U.S. and there are other areas, like small-cap stocks, that I think most people would probably want to have exposure to," she said. Arnott considers other components optional. "If you're worried about inflation, you might want to consider a small position in commodities. Or, if you're worried about the global uncertainty and turmoil, you might want to consider a small position in gold," she said. "There can be a reasonable argument for diversifying into those asset classes, but I would try to avoid making major shifts in your asset allocation in response to what's going on at any given moment," she added. Get Your Ticket to Pro LIVE Join us at the New York Stock Exchange! Uncertain markets? Gain an edge with CNBC Pro LIVE , an exclusive, inaugural event at the historic New York Stock Exchange. In today's dynamic financial landscape, access to expert insights is paramount. As a CNBC Pro subscriber, we invite you to join us for our first exclusive, in-person CNBC Pro LIVE event at the iconic NYSE on Thursday, June 12. Join interactive Pro clinics led by our Pros Carter Worth , Dan Niles , and Dan Ives , with a special edition of Pro Talks with Tom Lee . You'll also get the opportunity to network with CNBC experts, talent and other Pro subscribers during an exciting cocktail hour on the legendary trading floor. Tickets are limited!