Municipal pension plans are in a tough spot. They have trillions of dollars in unfunded liabilities, interest rates are low, and we’re coming up on the ninth consecutive year of stock market gains in the US. Municipalities are going to have a hard time balancing their need to take risk against their reluctance to do so in this environment.

The largest US pension fund is considering making a change by reducing equity risk in its portfolio. The California Public Employees’ Retirement System, or Calpers, is in discussions to slash its stock market allocation and more than double bond holdings to 44 per cent of assets, a huge change from the current policy.

Calpers said it reviews these types of asset allocation changes every four years and hasn’t made any concrete decisions yet. If it chooses to reduce risk in this fashion it may be making a wise decision even though institutional investors don’t have a history of timing the markets very well.

Whatever Calpers decides to do, a focus on asset allocation makes sense since that is likely the most important decision you can make at a portfolio level.

Investors of all shapes and sizes are probably dealing with similar anxiety about making a huge shift to their allocations because of the current market environment. There are no right or wrong answers here because everyone’s risk profile and time horizon will vary. There are some questions you should bear in mind, however.What is your plan after you sell?

Selling out of stocks is the easy part. Having a plan of attack for what to do if your timing is off is the challenge. This is especially true if stocks continue to rise. Do you sell more? Do you do this type of move in pieces? How will you react if you’re wrong?

If you were starting from scratch in all cash, would your portfolio look the same? Hitting the refresh button can be a helpful exercise to evaluate current holdings and think through a potential change to your portfolio. It’s easy to become attached to your investments so it pays to remain unemotional and unbiased about your holdings.

What will you regret more: making a change and being wrong or sticking with your current holdings and missing out on other investment opportunities? Regret often causes people to react in irrational ways so figuring out how to minimise that emotion can help. One of the best ways to do this when making a portfolio change is to avoid extremes and do it in steps.

Ben Carlson is director of institutional asset management at Ritholtz Wealth Management