5 Questions to Ask About Your Portfolio at Midyear 2025

Key Takeaways

• After several volatile months for stocks and bonds, investors should check in on their portfolios to ensure allocations are still on target.
• Amid April’s dramatic selloff and recovery, some segments of the market have posted outsized gains.
• Many investors may now be overallocated to US stocks and mega-cap tech and underweight fixed income.

The first half of 2025 is in the rearview mirror. While the stock market has recovered all its losses from April’s tariff-induced selloff, an uneven recovery among sectors means investors who haven’t checked in on their portfolios this year may find their allocations out of alignment. In the bond market, new risks are clouding the outlook as rates remain high.

Against that backdrop, investors conducting midyear portfolio reviews should pay extra attention. This type of regular review is designed to ensure an investor’s portfolio is in line with their longer-term goals. That involves checking in on asset allocations, cash reserves, and more. Morningstar’s Christine Benz breaks down the process.

It’s also a prudent time to reassess risk, especially given the volatility many strategists expect in the back half of the year. “We don’t think it’s a time to be over your skis in terms of risk,” says Warren Pierson, co-chief investment officer at Baird Asset Management. “We got a taste of how volatile things can be.”

Here are five key questions investors should be asking at the midpoint of the year.

Are There |Opportunities to Take Profits?

The steep selloff following President Donald Trump’s tariff announcements in early April was followed by a powerful rally after Trump walked back some of his proposals. But under the hood, the climb didn’t mirror the plunge. “Certain segments of the market rallied above where they were prior to the selloff,” says Morningstar Wealth chief multi-asset strategist Dominic Pappalardo.

Utilities stocks dropped 7.7% on the way down but climbed 24.2% on the way up, for instance. Financial stocks dropped 12% but rallied 23.5%. Pappalardo calls dislocations like that a “fantastic opportunity for profit-taking,” especially since underlying fundamentals haven’t improved all that much across the board.

Am I Underweight International Stocks?

Prior to this year, “the US has dramatically outperformed since covid,” Pappalardo says. “If you set your 401(k) targets seven years ago and haven’t changed them, you are going to be massively overweight the US just because of the run the US markets have been on.”

After years of US market supremacy, investors with more passive portfolio strategies might find themselves underexposed to the rest of the world. Where an overweight position in US stocks may have boosted returns over the last few years, strategists see more opportunity across the globe in the months ahead, as new trade policies and geopolitical tensions reshape the landscape.

Meanwhile, one of the biggest market stories of 2025 has been the strength of international stocks. For example, the Morningstar Europe Index is up nearly 23% so far in 2025, compared with a roughly 5% gain on US stocks.

Pappalardo’s team says US markets are overvalued overall, while emerging markets like Latin America, Brazil, Mexico, and Chile look “extremely undervalued.”

Am I Overweight Big Tech?

So-called “set it and forget it” investors likely experienced the same phenomenon within their US allocations, thanks to the powerful outperformance of mega-cap tech stocks over the past few years. That likely skewed portfolio allocations in favor of those companies, which are weighted very heavily within major indexes thanks to their size and scale.

But today, strategists see cheaper opportunities elsewhere in the markets. Pappalardo says consumer, healthcare, and small-capitalization stocks look appealing.

Do I Hold Enough Bonds?

While bond returns paled in comparison to stock returns over the past few years, the first half of 2025 has brought solid performance in fixed income, even with the extra headline risk stemming from tariffs and deficit worries. “If you haven’t realigned your fixed income allocation since 2022, now seems like a really prudent time to revisit that,” Pappalardo says. The stock market has bounced back since April, but interest rates are still elevated compared with the last few years. “Equities came back much, much stronger than fixed income did,” he adds.

That means investors can still capture attractive yields before rates fall again. And with rates high, bonds once again look attractive as a diversifier to help cushion the blow of future losses in the stock market. Right now, Pappalardo likes Treasury bonds over corporate credit, which looks expensive. “We just don’t think investors are being compensated to take that additional risk over and above Treasuries,” he says. “It’s a valuation story.”

Pierson takes a similar view, saying investors aren’t being well-compensated for taking extra risk in bonds, even if the fundamentals in the market are holding up fine. “You’re just not paid that much to take the risk,” he says, though he notes that he wouldn’t advise against abandoning corporate bonds altogether.

Am I Holding the Right Amount of Cash?

As always, the cash allocation in any portfolio is a highly personal decision. It depends on a wide array of factors and can vary greatly from person to person.

Investors often bulk up their cash holdings amid economic or geopolitical uncertainty. While cash products like money market funds are yielding attractive returns today thanks to elevated interest rates, that could change quickly in the months ahead. Pappalardo says, “The key factor in deciding on cash allocations is: How willing are you to move that back into the market when an opportunity presents itself?”

He thinks investors willing to actively monitor their cash holdings have more wiggle room to build and maintain a cash pile. Those who take a more passive approach may be better served with a smaller cash allocation to avoid missing out on returns or losing value thanks to inflation.