5 Smart Ways to Diversify Your Portfolio in 2026

Portfolio diversification sounds like a chore—something that you know you should do but don’t have the time or the energy to take on. There’s always something more pressing to do. And your investment portfolio seems to be doing just fine as is, so why bother?

But diversifying investments doesn’t have to be dreadful and time-consuming—and it may be worth the effort in 2026, given how dominant the artificial intelligence trade was last year. Without some smart diversification, your “just fine” investment portfolio from 2025 may be vulnerable in 2026.

“Investors don’t have to think there’s an AI bubble to be concerned about the concentration risk that AI has wrought,” says Morningstar Indexes strategist Dan Lefkovitz. “The Morningstar US Market Index‘s 10 largest constituents now consume 36% of index weight, up from 23% just five years back. Almost all are tied to AI. Concentration does not necessarily presage market crashes. But it leaves investors holding a market portfolio less diversified than in the past—by stock, sector, and theme."

What Is Portfolio Diversification?

Simply put, diversification means spreading out your investments across various asset classes in an effort to capture additional investment opportunities and/or reduce risk. For most investors in accumulation mode with long enough time horizons, a blend of stocks and bonds provides sufficient diversification.

There are more complicated tools some investors use to diversify their investments: For example, market-neutral, managed futures, commodities, and natural-resources funds typically have low correlations with US stocks. But these aren’t must-add investments if you want to diversify; in fact, such oddball funds that perform dramatically unlike the market can do more harm than good if an investor doesn’t have the wherewithal to stick with them.

“There’s no diversification potential if you can’t live with the position,” argues Morningstar managing director Jeff Ptak in a recent article about such oddball funds. Ptak has found that investors tend to buy and sell these more complicated investments at the wrong time, thereby negating their benefits. “For many, they probably belong on the ‘too hard’ pile instead,” he adds.

With keeping things simple in mind, here are five smart ways to diversify your investment portfolio in 2026:

1. Rebalance
2. Add bonds
3. Allocate to international stocks
4. Boost value and small-cap exposure
5. Incorporate dividend stocks

Diversify Your Portfolio by Rebalancing

Rebalancing is a way of restoring the original level of diversification you established for your portfolio. If you haven’t rebalanced in recent years, your portfolio is likely overweight in US stocks relative to bonds.

“A portfolio that started with a 60% weighting in stocks and 40% in bonds 10 years ago would now contain more than 80% in stocks,” calculates Morningstar portfolio strategist Amy Arnott.

Take a look at your current exposure to international stocks, too: Is it lower than your original target? Probably. “Even though stocks from outside the United States pulled ahead in 2025, that followed on the heels of a long run of outperformance for the US,” says Arnott. “As a result, your portfolio might still be light on international exposure.”

Arnott also suggests checking in on a few other areas of your portfolio that may have become more dominant recently. “Growth stocks, for example, have gained nearly twice as much as value stocks over the past three years. More specialized asset classes, such as gold and bitcoin, might also be above your target weightings thanks to their recent runups.” These allocations may be ripe for rebalancing, too.

Add Bonds for Portfolio Diversification

Financial professionals will say that investors in accumulation mode with many years until retirement don’t need bonds. When should typical accumulators think seriously about bonds?

“The age 50 to me is a really neat cutoff point where, if you’re over 50, I think you want to be realistic about derisking a portion of your portfolio,” says Morningstar director of personal finance and retirement planning Christine Benz. “I like the idea of building a bulwark of safer assets, probably high-quality short- and intermediate-term bonds, little bit of cash.”

In her model portfolios for retirement savers, Benz suggests a 5% bond allocation for savers with 35-40 years until retirement. That ramps up to a 20% bond weighting once retirement is 20 years out.

And if an investor of any age is looking to diversify a US stock portfolio, bonds—specifically, high-quality bonds—are an excellent choice, says Benz. Just keep in mind that, over long periods, bonds will underperform stocks. So, don’t overdiversify into them if your retirement is decades away. Remember, even a small position in bonds provides diversification that can dampen volatility in a portfolio.

Allocate to International Stocks for Diversity

International stocks did well in 2025, after underperforming US stocks for several years. But they’re still a good choice for portfolio diversification today, for a couple of reasons.

For one, despite their 2025 revival, the performance of international stocks has still lagged that of US stocks over the past decade. That suggests non-US stocks likely have more gas left in the tank even after their runup last year.

Moreover, non-US stock markets are less tied to technology and the AI trade and thereby provide diversification away from the trend that has driven so much of the US stock market’s return during the past several years. And the outperformance of the US stock market has made the global stock market more US-heavy, too. That’s another reason to dip into non-US stocks.

“Spreading one’s bets across geography can be seen as prudent risk management,” says Lefkovitz. “Remember that the US represents just 25% of the global economy but 63% of its stock market value. Given that imbalance, an all-US equity portfolio reflects real home-market bias.”

Boost Value and Small-Cap Exposure to Diversify

Those investors who own a diversified US index fund, whether that’s a one tracking the S&P 500 or a total market index, have a decidedly large-cap emphasis in their portfolio. They also have a heady dose of exposure to the AI theme. For instance, SPDR S&P 500 ETF SPY currently has nearly 8% of its assets in Nvidia NVDA; technology stocks take up more than a third of the portfolio.

To offset some of the concentration risk posed by the US stock market today, investors might consider allocating some assets to smaller companies or value stocks—or diversifying into both via a small-value fund or exchange-traded fund.

“Small-cap value has kind of persistently underperformed the large-cap growth stocks, and I think that arguably there’s a pretty good value there, so investors might do a little bit of repositioning so they’re not so heavily tilted toward those mega-cap growth and technology stocks,” suggests Benz.

Incorporate Dividend Stocks for Variety

Last, adding an extra dose of dividend stocks to your portfolio could provide some diversification. "Dividend-payers, which skew toward old economy sectors, allow investors to participate in the equity market without as much reliance on the AI theme," says Lefkovitz.

Indeed, these income-producing assets typically cluster in the utilities, consumer, healthcare, industrials, and financials sectors. And these sectors often perform well when tech doesn’t. That’s diversification in action.

Moreover, dividend stocks tend to be less volatile than non-dividend-paying stocks, because they often have more predictable earnings and conservative balance sheets. As such, many dividend stocks possess defensive characteristics, which is a benefit during times of market stress.

Adding a dollop of dividend stocks to your portfolio doesn’t mean having to buy individual stocks. There are many terrific dividend stock focused ETFs and funds to choose from, including Schwab US Dividend Equity ETF SCHD and Vanguard Dividend Appreciation ETF VIG.

Find more dividend stock funds to consider with Morningstar’s list of The Best Dividend Funds.