Understanding Glide Paths: Investment Strategies for Target-Date Funds

Key takeaways
* A glide path defines how a target-date fund shifts its asset allocation (stocks vs. bonds) as the target date approaches.
* Glide paths typically become more conservative over time, reducing equity exposure and increasing fixed-income or cash-like assets.
* Common glide-path types: declining (equities fall), static (allocations stay constant), and rising (equities increase over time).
* The appropriate glide path depends on your time horizon, risk tolerance, and retirement plans; consider consulting a financial professional.

What is a glide path?
A glide path is the pre-set plan used by target-date funds to adjust the mix of assets as an investor approaches a specific date (usually retirement). Its purpose is to reduce portfolio risk over time so that capital is better preserved as the goal nears.

How glide paths work
Target-date funds start with a higher allocation to growth assets (equities) when the time horizon is long, then shift toward safer assets (bonds, cash equivalents) as the target date approaches. Fund families design their own glide paths, which can vary in:
* Pace: gradual vs. steep changes as the target date nears.
* Endpoint: the asset mix at the target date (some funds assume investors will remain invested and keep equity exposure; others assume funds will be used soon and favor safety/liquidity).

Types of glide paths
Declining glide path
* Equities are reduced progressively as the target date approaches.
* Example: An investor with 40% equities at age 50 reduces equity exposure by 1 percentage point per year, while increasing allocations to safer assets like Treasury bills.

Static glide path
* Asset allocations remain constant over time, with periodic rebalancing to maintain the original proportions.
* Example: A portfolio that stays at 65% equities and 35% bonds regardless of age, rebalanced when market moves shift that mix.

Rising glide path
* Begins with a larger allocation to bonds and gradually increases equity exposure as bonds mature or as the strategy dictates.
* Example: A portfolio starts at 70% bonds/30% equities, then shifts toward a higher equity weighting over time as bond holdings mature and cash is reinvested in stocks.

Choosing the right glide path
Consider these factors:
* Time horizon: Longer horizons generally support higher equity allocations for growth potential.
* Risk tolerance: More risk-averse investors may prefer steeper declines in equities or a static, conservative allocation.
* Post-target plans: If you plan to spend down or annuitize at the target date, a more conservative endpoint may be appropriate; if you’ll remain invested, a higher equity allocation could be suitable.
* Fund differences: Compare glide-path design across fund families—pacing and endpoints can vary significantly.

Next steps
Review the glide path of any target-date fund you’re considering, compare alternatives, and align the fund’s assumptions with your retirement plans and risk tolerance. For personalized guidance, consult a financial professional.