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Jeffrey Hutton is a Morningstar contributor.

As equity markets make their biggest gains in at least two years following coordinated action by the world's biggest central banks, the lesson for investors is that when it comes to maintaining a diversified portfolio it pays to be patient.

If volatility in recent months convinced you to chuck it all in, sell off a big chunk of equities and stick with term deposits, then you would have been in for a shock today.

"If you sold out of your risk assets or cyclicals you would have been fuming this morning," says George Boubouras, head of investment strategy and consulting at UBS Wealth Management Australia.

"Equities aren't something you buy for a week and throw away."

Chances are the ASX 200 was already going to pare back the 13 per cent fall it has suffered this year. On average, over the past six decades the All Ords stages a recovery of just over 2 per cent in December, according to CMC Markets.

Now, as central banks show their willingness to work together and free up liquidity, there is hope equities may finish the year off in the black, investors say.

"Last night's action is a statement that world is taking European debt issues seriously," says Jason Darling, portfolio manager at Macquarie Private Portfolio Management.

"This might be enough to finish the year up."

The central banks of the US, the UK, the euro region, Japan, Canada and Switzerland agreed to cut the cost of providing dollar funding via swap arrangements. The announcement was met with a move by the Chinese central government to lower the reserve requirement for banks for the first time since 2008 by 0.5 of a percentage point, freeing up their capacity to lend.

The joint action coincided with positive news out of the US that showed better-than-expected business activity, employment and housing market data.

While the move does nothing to address the underlying ability of governments such as Italy to service their debt, the cash injection makes it easier for banks to lend to each other and reduces the chances of a credit crunch.

In recent months the overnight lending rate, or the amount banks lend each other to cover short-term transactions, has blown out in a sign of growing mistrust. The London Interbank Offered Rate has risen to 27 basis points from just under 19 basis points at the beginning of July.

The Dow Jones Industrial Average had its biggest jump since March 2009 overnight, while the local bourse soared almost 3 per cent at the open.

To keep the momentum going, though, more must be done, UBS's Boubouras warns. The European Central Bank must engage in an unlimited bond buyback, and lower rates as countries like Italy take steps to cut spending and lower debt.

"That would be the silver bullet," Boubouras says.