Constructing a diversified investment portfolio is crucial, but recent data shows that basic building blocks like US stocks, small caps, international stocks, and bonds have been positively correlated. Although their performance varied, bonds acted as portfolio ballast during market stress in 2025 and previous years.

Looking back at the 2000-2009 period, US bonds outperformed stocks, with negative correlations observed. International stocks and small caps were closely tied to US larger caps, highlighting the importance of a diversified asset mix for investors during challenging market conditions.

As we move forward, there is speculation about the future market landscape resembling the early 2000s. Morningstar’s 2026 Global Investment Outlook suggests potential upside in international stocks and US small caps, emphasizing the need for a dynamic approach to asset allocation based on changing market conditions and economic trends.

Read more at Morningstar: Why Portfolio Diversification Is About More Than Just Correlations