Recent performance in international stock markets suggests that global diversification can also help protect your returns.
Fresh numbers
The final 2025 numbers have arrived from Morningstar, the financial services firm that has tracked the performance of mutual funds and exchange-traded funds for The New York Times for many years. These numbers show that as great as the performance of U.S. equity funds was, many other global stock markets performed better last year. Bonds have also performed well, although corporate bonds are now highly valued.
Here are some of the average stock and bond funds’ three-month, 12-month and five-year annualized returns through December:
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Domestic equity funds, including both actively managed funds and index funds: up 1.9 percent over three months, 13 percent over 12 months and 9.9 percent over five years. The average fund underperformed the S&P 500 stock index and simple tracking funds like VOO in each period.
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Taxable bond funds: up 1.2 percent over three months, 7.6 percent over 12 months and 2 percent over five years.
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Municipal bond funds: Up 1.4 percent over three months, 3.6 percent over 12 months and 0.9 percent over five years.
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International equity funds: up 3.9 percent over three months, 31.4 percent over 12 months and 6.5 percent over five years.
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Diversified asset allocation funds with 50 to 70 percent stocks and most of the rest in bonds: up 2.3 percent over three months, 13.7 percent over 12 months and 7.7 percent over five years.
As wonderful as many of these returns may be, investing in diversified funds has its limitations. While you get some protection, you miss out on the performance of some brilliant stocks. Nvidia, for example, had a bad quarter with a loss of 0.04 percent, but its five-year return was exceptional: 70.3 percent annualized, according to FactSet, nearly five times the S&P 500’s performance.
Funds that focused on narrow sectors performed extremely well, for better or for worse. Here are some annualized returns through December:
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Precious metals stock funds, which include gold miners, rose 16.7 percent over three months, 152.8 percent over 12 months and 18.6 percent over five years.
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Latin American equity funds rose 6.2 percent over three months, 48.8 percent over 12 months and 6.2 percent over five years.
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Funds investing in digital assets such as Bitcoin fell 24.5 percent in three months and 11.5 percent in 12 months. This volatile category is too new for five-year returns.
Trying to pick the right fund or stock at the right time is risky, and I prefer an easier route.
Looking ahead
I invest in public markets based on several key assumptions.
While history may not repeat itself, I expect that over the long term the stock market will continue to outperform the bond market, but will be far more volatile. These markets are supported by the economy, which I believe will grow despite chronic problems and periodic upheavals. And I assume that no single market will always outperform all others. Therefore, global diversification and inclusion of safer assets such as bonds and cash makes sense.