As I write this, the US stock market is fast approaching the all-time high hit back in 2007.

Investors have good reason to be optimistic, especially since fourth-quarter 2012 earnings reports are showing that higher revenue—not just cost cutting— is starting to drive earnings growth. And the pace of consumer spending is picking up, thanks to an improving employment outlook and firming real estate prices.

While the good cheer can be contagious, history shows caution is warranted. The S&P 500 has been in the neighborhood of 1,500 before. The first time was back in 2000, when a historic bull market was undone by the bursting of the tech bubble and stocks fell into a nearly two-year nosedive. The market came off its highs again in late 2007, as a prelude to the global financial crisis.

Although these arbitrary thresholds shouldn’t cause concern that a market meltdown is imminent, they are psychologically important.

We’re not alone in treading carefully. There are signs that the average investor’s psyche might be a bit more fragile than assumed: Stock funds saw $13 billion in net outflows in January. Meanwhile, investors poured $11 billion into bond funds and $83 billion into money market funds. The need for income explains some of this behavior, but I suspect many are leery of a market top.

There’s already been a slight pullback in trading volume, and the NYSE advance/decline ratio has been flattening recently. All it would take to trigger a down move would be rumors of the Fed tightening credit, bad news from China or another flare-up in the European debt crisis.

In fact, I wouldn’t be surprised to see a near-term correction. The market has come a long, long way since its low in early 2009. But we’ve also had a couple of corrections since then, and the bulls are likely to take another breather in the next month or so.

To be prepared for this eventuality, you must be properly diversified, both in terms of sector exposure and geography. So if you’ve been caught up in the optimism and haven’t paid much attention to your allocations lately, it might be time to do some rebalancing. Additionally, it could be worthwhile to raise some cash by trimming overvalued positions, so that you can take advantage of an eventual market selloff. A small cash position can also act as a buffer when the market drops.

If a correction does occur, treat it as a buying opportunity. The global economy looks healthier than it did even just a year ago. While European growth remains sluggish, US economic indicators are pointing to a rebound in the near term, and the emerging markets are robust. As such, any correction should be short-lived, with the market resuming its ascent thereafter.