A few years back my friends formed a 3-part harmony band in Singapore. As the name suggests, the three parts are the three musical notes which when harmonised or blended together, create a new unique sound. Any musical tune or melody can be split into three harmonies and blended together. The band expanded the repertoire to include some Floyd and needed a bass guitarist and convinced me to join The Brothel Street band. Why the name is another story.

There is a lot of musical theory that goes into creating the harmony but it is interesting that the underlying principles are relevant to the asset allocation models, commonly used for portfolio construction. I will save you from music theory, but simply put, the musical notes are at intervals of 1 – 3 – 5 semitones and are bound together by the chord progression.

In the world of financial investments, each asset class - fixed income, equities and alternatives (gold/hedge fund/etc) - has a different tonal quality or risk/reward profile. Each of these classes on its own serves a purpose, but when blended together produce a more rounded and smoother experience which is enhanced by its complexity, but yet unique in its rendering.

It is ironic that financial advisors, in the race to serve their own purpose and sell products, abandon such a simple model of asset allocation. Investors also abandon it as they sway between greed to fear. With neither advisor nor client, incentivized to stick to asset allocation plans, their investment journey begins to sound like a discordant group of notes bunched together to produce noise.

Check out some of the songs of Simon and Garfunkel to hear the harmonies in their song and while you are at it, would be great if you use asset allocation.