The local market had been blessed with many high-yielding, defensive sectors that dominated the key index.
That had resulted in the NZX50 rising 32% in the past 12 months, and the listed property sector not far behind with a 20% rise.
''With valuations high - especially in the high-yield sectors that have driven performance - the market will be more sensitive to bad news, and particularly any shift in inflation or interest expectations.
''We believe it is time for existing investors to take some profits.''
Craigs was also recommending investors increase fixed interest as they reduced their shareholdings, he said.
Tactically, Craigs had held an ''overweight equities'' stance from March 2010 to February 2016 when the broker moved to a neutral position.
Now, Craigs was moving to a more defensive stance, reducing growth assets of shares and property slightly in favour of income assets such as cash and fixed interest, Mr Timms said.
''Rather than reflecting a more cautious view on the economic backdrop, this relates more to an expectation of more modest returns, a number of risks that could lead to short-term volatility and an acknowledgement of high valuations in many sectors.''
It was sensible to hold above-average levels of cash now, he said. Bank deposits in the six- to 12-month range were offering rates of about 3.5% which offered a reasonable risk/reward balance.
It also provided a buffer should any market weakness materialise in the coming 12 months, allowing investors to take advantage of attractive opportunities as they emerged.
Craigs expected markets to experience regular bouts of volatility as seen during the past two years.
Investors should ensure growth assets were adequately represented across all markets, Mr Timms said.
At a stock and sector level, Craigs had made adjustments to all of its portfolios. The change could be best described as a ''tilt to growth'', partly driven by better value on offer and the need to reduce some weighty exposures to income stocks that had performed well.
Even income-dependent retirees could not afford to ignore growth stocks as they too required an exposure to those companies to ensure they maintained their spending power.
Those dependent on yield should start focusing on total returns, he said.
Rather than thinking about the returns from a portfolio - share price movements (capital gains) and interest and dividends (income) - as two separate components, another approach would be viewing the total returns of the portfolio as a pool of income available to be drawn on.
''We believe it is more prudent to maintain a high-quality portfolio funding withdrawals from both income and capital than to chase a higher level of income through a lower-quality portfolio.''
