Summary
Diversification can become an easy-to-miss problem for investors when market leadership shifts. In guidance circulated for 2026, Morningstar said that after a year in which the artificial intelligence trade was dominant, investors may have accumulated stock concentration that differs from their original targets.
Morningstar Indexes strategist Dan Lefkovitz tied that concern to “concentration risk” created by recent market performance. He said investors “don’t have to think there’s an AI bubble to be concerned about the concentration risk that AI has wrought,” explaining that concentration can leave investors holding a market portfolio “less diversified than in the past—by stock, sector, and theme.”
Morningstar portfolio strategist Amy Arnott said investors can start by rebalancing to restore diversification levels they set earlier. She calculated that a portfolio that began with a 60% weighting in stocks and 40% in bonds 10 years ago “would now contain more than 80% in stocks,” suggesting that a failure to rebalance for years can shift a portfolio toward one asset class even if the investor’s original plan was different.
Arnott also urged investors to check international stock exposure relative to their initial target. She said that even though stocks outside the United States “pulled ahead in 2025,” the rebound arrived after “a long run of outperformance for the US,” which she said can mean portfolios remain “light on international exposure” despite the recent improvement.
Christine Benz, Morningstar’s director of personal finance and retirement planning, said investors who are over 50 should consider “realistic” de-risking by adding bonds. Benz told investors she “like[s] the idea of building a bulwark of safer assets,” and she pointed to “high-quality short- and intermediate-term bonds, plus a little bit of cash.”
In Morningstar’s retirement models, Benz recommended bond allocations that change as the retirement date draws nearer. Her guidance suggested a 5% bond allocation for savers with 35-40 years until retirement, ramping up to a 20% bond weighting once retirement is 20 years out.
For stock diversification beyond U.S. equities, Morningstar’s guidance emphasized allocations to international stocks, citing how the performance of non-US shares has lagged the US over the past decade. The guidance said international markets have historically been less tied to technology and the AI trade, providing diversification away from the trend that has driven much of the US stock market’s return in recent years, and it quoted Lefkovitz saying “Spreading one’s bets across geography can be seen as prudent risk management.”
The firm also advised adjusting within the U.S. stock portion of a portfolio to reduce concentration tied to large growth and technology exposures. Benz suggested investors consider “small-cap value” positioning so they are “not so heavily tilted toward those mega-cap growth and technology stocks,” and the guidance pointed out that small-cap value has “persistently underperformed the large-cap growth stocks.”
Finally, Morningstar recommended diversifying through dividend-focused allocations, describing dividends as linked to sectors that can perform well when tech does not. The guidance said dividend stocks typically cluster in utilities, consumer, healthcare, industrials and financials, and it added that dividend strategies often have “defensive characteristics,” which it said can help during market stress. The article also named dividend-focused ETFs and funds, including Schwab US Dividend Equity ETF (SCHD) and Vanguard Dividend Appreciation ETF (VIG).
This Morningstar advice was provided to The Associated Press by Morningstar. The firm directed readers to related Morningstar materials including its guide to portfolio diversification and its list of best funds to rebalance a portfolio in 2026.