Why Diversification Still Works: Lessons from 2025
As we look back on 2025, one theme stands out clearly: diversification worked. It did not suddenly start working again. Markets have always rotated leadership, often at the very moment confidence is highest that yesterday’s winners will simply continue winning.
A good example of this dynamic is the frequently reported death of the 60/40 portfolio. The prevailing narrative was that bonds were no longer effective diversifiers and that persistent upward pressure on interest rates would keep bond prices depressed indefinitely. Last year challenged that assumption. The Bloomberg U.S. Aggregate Bond Index rose more than 7%, a meaningful reminder that bonds are not only a source of stability, but can also contribute real return. This is especially true in periods when yields have reset higher and income becomes a meaningful component of total return.
International markets provided another powerful lesson in diversification. For much of the past 15 years, investors have grown accustomed to viewing U.S. equities as the only market that truly mattered. During that period, U.S. stocks consistently outperformed their international counterparts. In 2025, however, that script flipped. The MSCI EAFE Index gained more than 30%, and emerging market equities advanced strongly as well. These types of rotations often occur quickly and unexpectedly. That is precisely what diversification is designed to address. It does so not by predicting the exact turning point, but by ensuring portfolios are not dependent on a single region, asset class, or theme.
We also saw a meaningful shift in market leadership closer to home. In recent years, it often felt as though the Magnificent 7 was the only place to generate returns. We have spent considerable time discussing why we believed that would not always be the case. Extreme concentration can persist longer than seems rational, but it never lasts forever. In 2025, the market broadened substantially, with more sectors and more companies participating in gains. Historically, this kind of broad participation represents a much healthier environment for long-term investors.
The key takeaway is straightforward. Successful portfolio construction is not about chasing what has worked most recently. It is about maintaining patience and discipline through market cycles. Once again, those principles were rewarded in 2025.
That philosophy is exactly how we approach investing. We strive to be steady, long term oriented, and focused on fundamentals rather than headlines. This mindset aligns with our mission to be your most trusted partner at every stage of life.
Thank you for the trust you place in us. We do not take it lightly. We remain committed to helping you navigate whatever comes next with clarity and confidence.
