Roger Nusbaum submits: There is an interesting post up at Where Is The Yield that criticizes a three ETF portfolio put forth by Paul Schultheis of Pacific Asset Management that advocates 33% each in Vanguard Total Market (VTI), iShares MSCI EAFE Value (EFV), and iShares Lehman Brothers Aggregate Bond Index Fund (AGG). I am not going to defend the portfolio; it's not something I would do for anyone. If you can buy three funds and "get on with your life," you can probably buy more than three and also get on with your life, if you want to be that hands off.

WITY (the pseudonym of the blog's writer) gives several reasons why he does not like the portfolio including, "For a 65 year-old, for example, the equal-weight three fund allocation suggested by Schultheis is inappropriate, because 66.7% equities is too much."

His sentiment is not wrong per se, but it is open to opinion and interpretation. I would say that a 65 year old with $500,000 and healthy 90 year old parents might need more than 2/3rds in equities. $500,000 properly diversified can meet an income need of $25,000, which is not a lot of money. The person in my example could live to 100 quite easily. With only $500,000, he needs growth badly. If he can live on $25,000 today, OK. But ten years from now with normal inflation he may need $35,000 to live the exact same lifestyle. That means his $500,000 needs to meet his income need every year, and then be worth $700,000 (minimum) in ten years.

Ten years later still, a $35,000 lifestyle in 2016 dollars may cost $50,000 in 2026. So from 2016 to 2026 the money needs pay the investor his annual income and be worth $1 million (minimum) in 2026.

Too much in bonds could result in financial crisis for this investor, and the situation could be typical. $500,000 to start is a fine number, but does not make anyone wealthy, and more and more of us will be faced with living much longer than our grandparents.

In the coming years more people will need to accept this and allocate appropriately. If the above investor put 40% of his $500,000 into some mix of bonds with an average maturity of ten years, his $200,000 today will still be worth $200,000 in 2016. This means that what he does have in equities will need to work much harder (read be more aggressive) to get to where he needs it to be.

There is no right or wrong with this, just subjective opinion.

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