Asset allocation is about developing a portfolio strategy containing a mix of asset sectors based on achieving outcomes for a client. By disciplined and continuous re-balancing back to these pre-set levels, the characteristics of the strategy are maintained. In turn, this entails continuously taking profits from outperforming sectors and reinvesting into under-performing sectors – or selling at the top and buying at the bottom.

The past five years have been tough, but surely it is times like this that professional advisers need to stand up and be counted with courage in their beliefs. This is when clients really need wise counselling and cool heads – not a universal “run for the hills” attitude.

If clients’ equity investment values fell in 2008-09, they are not going to recover value by investing in fixed interest. In fact, under the principles of re-balancing they should have been buying quality equities at cheap prices so that they could recoup value as markets recover – as they always do. This would have also resulted in them buying robust income streams from share dividends, which have been ridiculously high in some sectors.

Investors are now faced with a dilemma of being over-weight to fixed interest securities in a declining interest rate market. If they are relying on investment income to live, this could be disastrous. By waiting for the market to recover and the greed factor to click back in, the opportunity has been lost. The ASX All Ords index gained 33.5% in the 2009 calendar year and has been edging up further over recent months. If you weren’t invested, you missed out.

Disciplined re-balancing of asset sectors ultimately cannot lose – so why abandon the principle for the sake of short-termism. Where is the commitment to the clients who rely on us for guidance and cool heads in a crisis?