glide path
The gradual shift in asset allocation from aggressive (more stocks) to conservative (more bonds) as an investor approaches and enters retirement.
Example
“The target date fund's glide path automatically reduced equity exposure from 90% at age 25 to 40% by age 65.”
Memory Tip
GLIDE PATH = gradually de-risking as retirement approaches. Like a plane GLIDING to a safe landing.
Why It Matters
A glide path is crucial for retirement planning because it helps automatically adjust your investment risk as you get closer to needing the money. Without a structured glide path, investors might take on too much risk late in their careers or become too conservative too early, both of which can negatively impact long-term wealth accumulation.
Common Misconception
Many people believe a glide path means selling all stocks at retirement and moving entirely to bonds, but that is incorrect. In reality, most glide paths maintain a meaningful stock allocation even in retirement to provide growth and combat inflation over what could be 30+ years of retirement.
In Practice
Consider a 50-year-old investor with a target retirement age of 65 who follows a glide path. At age 50 they might hold 80% stocks and 20% bonds, then gradually shift to 60% stocks and 40% bonds by age 60, and finally 40% stocks and 60% bonds by age 70. This automatic rebalancing reduces portfolio volatility without requiring the investor to make emotional decisions.
Etymology
From aviation: the GLIDE PATH is the descent angle of a landing aircraft — gradually descending (de-risking) toward the destination (retirement).
Common Misspellings
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