Nathan-

In the income portfolio I favor high yield stocks since less is needed to be invested to generate the desired income level, the dividend stream grows over time (generally faster than inflation), and this allows avoiding dipping into principal, which reduces the risk of running out of funds.

Other high yield bonds/REITs/MLPs can also we included, but I suggest a significant allocation to high yield stocks.

The stable, growing income stream should be the focus in client discussions. Dividend payments display very little volatility versus stock prices. This is because dividend payments are based on company earnings which are in turn driven by the economy.

On the contrary, stock prices are very noisy, since they are driven by emotional crowds and not fundamentals.

But as you suggest, the shiny object of market volatility is what investors will often focus on even though there is little or no relevant information being revealed by price movements.

In the growth portfolio I suggest 3-8 equally weighted, truly active equity managers/funds.

Other asset classes that might be considered are real estate and managed futures, both of which have equity like expected returns.