The current inconsistency between mid (10 yr) and long-term asset class return-risk relationships suggests a shift to more conservative allocations would be prudent at this time.

This inconsistency is due to the extreme valuations in stocks today. Based on the Shiller CAPE historical data for the S&P 500 index over the last 115 years there were only 3 or 4 periods in which stocks were at higher valuations.

This does not mean a fall in stocks is about to occur. It simply means that future average mid-term return expectations now fall within the lowest 5th percent rank.

Here are the current Mid-Term Asset Class Inputs as of December 31, 2014

When mid-term and long-term asset class return-risk relationships are aligned then your asset allocation/fund should reflect your risk tolerance/retirement target-date year. At this time however, a shift to a more “efficient” asset allocation/fund may be prudent given the inconsistency between mid-term and long-term asset class return-risk relationships. This inconsistency is also reflected in the below allocation efficiency (Sharpe) scores.

Percent allocations are Morningstar category averages.

Sharpe = (Strategy Return – Risk-Free Rate)/Strategy Risk