Tom,

In the long-run, correlation and volatility are important in building long-horizon wealth due to the impact of compounding. We know this from a simple two asset portfolio. If two portfolios have the same return but one has less volatility, the portfolio with less volatility will compound to a higher level of wealth over the long-term. Therefore if I can accomplish the same level of return of equities with less risk by owning something else alongside, I'm better off.

In addition, while segregating assets into emergency/cash reserve, income, and growth, may make sense initially, we know that all investors suffer from loss aversion. They feel the pain of losing twice as much as the joy of winning. Most investors would happily trade some upside to limit the downside in the worst moments.