What Happened to “Just Buy an S&P Index Fund”?
Why last year was a reckoning.
For the past couple of decades, investing felt almost embarrassingly straightforward. The S&P 500 has massively outperformed international stocks and many other portfolios, especially since the financial crisis in 2008.
It’s like Grandma’s Toll House cookie recipe. You buy the S&P 500, load up on the big AI names and you’re diversified. Then watch your retirement fund balance grow. If you followed that recipe, you had a reason to feel pretty clever because the numbers backed you up.
But 2025 was a reckoning. The S&P 500 experienced an almost 19% midyear decline before recovering, while a broadly diversified portfolio returned 18.3% for the year compared with roughly 17% for the S&P 500 and 13.3% for a traditional 60/40 portfolio, according to Morningstar research.
It reminded everyone that real diversification isn’t just owning “a lot of stocks.” It’s owning assets that actually behave differently when the market shifts.
There aren’t many investing pearls of wisdom I can offer that work consistently but this one does: diversification wins all battles.
Morningstar’s 2025 performance research tells the story pretty clearly. A truly diversified portfolio spread across 11 asset classes: large-cap U.S. stocks, developed and emerging markets, Treasuries, bonds, small-company stocks, commodities, gold, and REITs. That mix returned 18.3% for the year, better than the S&P 500’s roughly 17% return and well ahead of a traditional 60/40 portfolio at 13.3%.
What got my attention is where those returns came from.
Gold had one of its strongest years in two decades. A roughly 70% move in a relatively short period of time is considered an unusually powerful rally for gold, which is why so many investors suddenly started paying attention to it again in 2025.
Some of the strongest areas in 2025 came from corners investors had ignored for years: emerging markets, international value stocks, metals and commodities, smaller companies, REITs, global bonds, and yes, gold.
Meanwhile, I’ve been hearing from lots of pre-retirees who thought they were pretty well diversified and realized they had too much risk in the same handful of mega-cap U.S. technology companies. That concentration worked beautifully on the way up. On the way down though, or even sideways, it becomes a very different experience. (If you have concerns about your portfolio, it could be a good time to speak with an advisor or get a one-time financial checkup. Wealthramp can help you with both.)
Money also started flowing outside the usual U.S. mega-cap tech trade. A weaker dollar, concerns over geopolitics, and higher inflation pushed investors to look for other places to put money, and international markets and alternative assets benefited.
This is what makes the advisor conversation more relevant than ever. For years, the standard question was simple: “Did you beat the S&P 500?”
That question still matters, but it’s no longer the only conversation. Today’s portfolios are more global, more multi-asset, and more dynamic.
The real work now often involves deciding how much international exposure actually makes sense for a particular client, whether commodities or gold belong in the portfolio at all, how to manage bond exposure after historic interest-rate moves, minimizing tax drag, rebalancing systematically, planning retirement withdrawals, and helping clients avoid emotionally chasing whatever just had the hottest run.
That’s one reason the advisory industry continues moving toward fee-only planning relationships, according to Cerulli Associates. Investors increasingly aren’t paying advisors just to pick stocks. They’re paying for portfolio construction, risk oversight, tax strategy, behavioral coaching, and ongoing planning around increasingly complex portfolios.
Here’s my point. If that diversified portfolio returned 18.3% while the S&P 500 returned roughly 17%, an investor paying around a 1% advisory fee might have ended up roughly in line with the broad market after fees while also getting comprehensive financial and tax-forward planning wrapped around the portfolio itself.
In other words, the value of diversification and professional risk management alone can effectively pay for the advisor’s fee.
None of this means a diversified approach will outperform every single year. Over longer periods, the plain 60/40 portfolio has still delivered solid results. But 2025 was a serious reminder that sustainable investing success rarely comes from piling into last year’s winners.
It comes from building a portfolio and a plan, durable enough that you can stay invested no matter what comes next.
P.S. If you’re ready for a financial checkup, get in touch here anytime. Our advisors are rigorously vetted, and we never sell your personal data.