What is a Glide Path?
A glide path is the predetermined trajectory of asset allocation changes over an investor's lifetime, named after an airplane's descent path to landing. A typical glide path starts at 90% stocks and 10% bonds in your 20s and gradually shifts to 40% stocks and 60% bonds by retirement. Target-date funds automate this transition, making glide paths accessible to investors who prefer a hands-off approach.
Why Reduce Stocks Over Time
Young workers have large human capital (future earnings) that acts like a bond, allowing aggressive financial asset allocation. As retirement approaches, human capital depletes and financial assets must provide income stability. A stock market crash five years before retirement is devastating if the portfolio is 90% equities but manageable at 40%. The glide path systematically reduces this vulnerability.
'To' vs. 'Through' Glide Paths
'To' glide paths reach their most conservative allocation at retirement and hold steady. 'Through' glide paths continue reducing equity exposure into retirement. With 20-30 years of potential retirement ahead, 'through' paths maintain more growth potential to combat longevity risk. Choose based on your other income sources: those with generous pensions can afford more aggressive glide paths than those relying solely on portfolio withdrawals.