Glide path
What is Glide path?
A glide path is a planned change in portfolio asset allocation or risk exposure as time, funded status, or a target date evolves.
The path should be stored as dated target allocations with permitted bands, rationale, implementation method, and review triggers. Historical analysis must use the target known at each date, not today's path applied backward. Deviations caused by markets, cash flows, or decisions should remain separately attributable.
A change in destination, contribution, funded status, or risk capacity may justify revision through documented governance.
Users should see both the target path and actual consolidated household exposure through time.
Time-based paths
Target-date strategies often reduce equity and increase bonds or cash as the target approaches. A through path continues changing after the date, while a to path reaches its endpoint around it. Labels are not standardized. Two funds with the same year can have materially different risk, diversification, fees, and post-target allocation.
Why risk may change
As a goal nears, fewer future contributions and less recovery time can reduce risk capacity. Human capital also declines for many workers. However, retirement can still have a multi-decade horizon and longevity requires growth. Allocation should reflect spending, outside income, funded status, bequest, and capacity rather than age alone.
Dynamic alternatives
A funded-status path changes risk when the goal becomes better or worse funded; a market-responsive approach can use valuation or volatility; personalized paths include income and liabilities. Complexity can improve fit but adds model and governance risk. Changes should be rule-based or documented, not disguised attempts to predict every market turn.
Portfolio implications
The path determines sequence risk, expected return, drawdown, and sensitivity to rates and inflation. Automatic rebalancing supports discipline, but investors can undermine it by holding overlapping funds or trading around the path. Contributions and withdrawals should be incorporated so transactions move efficiently toward target while managing tax and cost.
Practical review
Inspect current and future weights, risk range, diversification, underlying funds, fees, rebalancing, target-date meaning, and behavior after the date. Stress early retirement, delayed goal, market loss, inflation, and longevity. Compare the path with actual household assets and liabilities rather than selecting solely from age or a fund name.
Sources and further reading
- Asset Allocation and Diversification, FINRA
- Save and Invest, Investor.gov, U.S. Securities and Exchange Commission