With the market still hovering near all-time highs, economic data coming into question, and many pundits once again forecasting tough times ahead, a familiar question begins to arise…

“Should we take some chips off the table?”

It’s an understandable question, given that the stock market has been on an incredible run for much longer than anyone anticipated.

More specifically, the market has delivered returns of +26%, +25%, and +18% over the last three years (and averaged more than 15% per year for the last decade). And last year, international and emerging markets joined the party in a big way, returning +31% and +34%, respectively.

The pleasant result of these returns is that our portfolio balances—for many of us, if not most of us—are higher than ever before. Obviously, that’s a great thing.

But when that happens, we have an innate instinct to protect what we’ve accumulated. That response is as natural as it is ironic.

It’s ironic because our portfolios have grown to where they are primarily because we stuck with equities while many investors abandoned them for one reason or another.

All that said, let’s return to the question at hand: Should we take some chips off the table?

When framed this way (and it’s almost always framed this way), the question includes an embedded assumption that we should trim our equities because the market seems destined to decline. In other words, shouldn’t we lock in our gains before the market falls?

If we’ve learned anything from the past few years (and all of history), it’s that nobody knows what will happen next.

“Market experts” have forecast lower returns for more than a decade now. Yet over that time, the market has produced above-average returns that our portfolios have clearly benefited from. This is life in the markets, where unexpected things—both good and bad—happen all the time.

Author Carl Richards uses the phrase “irreducible uncertainty” to describe the reality that no matter how much analysis, planning, or data we gather, there remains a baseline level of not-knowing in life and the markets. This uncertainty cannot be eliminated; it can only be accepted and worked with.

Given that reality, a better question to ask might be:

“Do you need to take some chips off the table?”

This subtle shift in the question moves us away from forecasting and back toward planning. To answer this question, we need some additional information. Here are two critical follow-up questions:

• Have your goals changed?
• Do you have enough set aside in cash reserves and other short-term assets to cover your near-term income and lump-sum needs?

Those are the questions that actually matter.

If your goals haven’t changed, then it’s unlikely that your portfolio requires adjustment since one of our many behind-the-scenes responsibilities is to continually review your portfolio to ensure it remains aligned with what your goals demand.

As for the second question, if you already have sufficient assets set aside in low-volatility holdings to fund your income and anticipated expenses for the next few years—of which the amount and length of time are client- and situationally-dependent—then again, it’s unlikely that you need to make any changes.

Of course, if your goals or needs have changed, that’s a different conversation, and one we should absolutely have. But assuming we’re still on track, then history suggests we’d be wise to avoid altering our portfolios due to forecasts that are so often wrong.

Which is precisely why our financial plans (and portfolios) aren’t based on headlines or forecasts, but on your purpose, goals, time horizon, and all that we can learn from history.

To be clear, taking some chips off the table makes sense when your life requires it, but doing so due to fear about what might happen next is something entirely different.

Investing legend Peter Lynch once put it this way,

At its core, that’s the trap we’re working to avoid. As always, I welcome your feedback. Until next time, stay the course.