Glide Path

A Glide Path is the strategy for shifting a portfolio's asset allocation over time from higher-risk investments to more conservative ones as an investor approaches a specific financial goal, most commonly retirement. Think of it like a plane coming in for a landing. Far from the runway, the plane is high and fast (representing a high-growth, higher-risk portfolio). As it nears its destination, it gradually and smoothly descends, reducing both speed and altitude to ensure a safe touchdown. Similarly, an investment glide path aims to methodically decrease portfolio risk to protect the capital you've accumulated. When you are young and have decades of work ahead, your portfolio can afford to be aggressive—heavily weighted in stocks—because you have time to recover from market downturns. As retirement looms, the priority shifts from growing your nest egg to preserving it, meaning you'll systematically sell stocks and buy more stable assets like bonds.

The core logic of a glide path is managing risk relative to your time horizon. The biggest risk for a young investor isn't market volatility; it's failing to grow their capital enough to meet their future needs. The biggest risk for someone nearing retirement is a sudden, sharp market decline that decimates their savings with no time to recover before they need to start drawing income from it. Imagine two investors, both with $500,000. For a 30-year-old, a 30% market crash is a stressful event but also a massive buying opportunity. They have decades of future income—what specialists call human capital—to keep investing and take advantage of the recovery. For a 65-year-old who just retired, that same 30% crash is a catastrophe, wiping out $150,000 just as they're about to turn their portfolio into a paycheck. A glide path is the financial seatbelt designed to prevent this very scenario by reducing exposure to severe bumps as you get closer to your destination.

Creating a glide path essentially boils down to deciding on your mix of growth and safety assets and how that mix will change over time.

• The Do-It-Yourself (DIY) Approach: You can manage your own glide path by periodically selling a portion of your stocks and buying bonds, a process known as rebalancing. A common rule of thumb, though a bit simplistic, is the “100 minus your age” rule, where the result is the percentage of stocks you should hold. For a 40-year-old, this would mean a 60% stock, 40% bond allocation. Every year or so, you would adjust this mix. This method gives you maximum control but requires discipline.
• The “Autopilot” Approach: For investors who prefer a hands-off method, the Target-Date Fund (TDF) is the most popular solution. You simply pick a fund with a year closest to your expected retirement date (e.g., “Target 2050 Fund”). The fund manager handles everything, automatically adjusting the asset mix along a pre-determined glide path, becoming more conservative as the target year approaches. The trade-off for this convenience is a potential lack of customization and sometimes higher management fees.

A classic glide path is agnostic about the market. It shifts your allocation based on only one thing: your age. This mechanical approach can be a problem. It might force you to sell stocks when they are cheap and undervalued (after a crash) and buy bonds that offer paltry returns. A value investor, in the spirit of Benjamin Graham, thinks differently. The risk of an asset isn't fixed; it changes with the price you pay.

• Valuation-Aware Allocation: A value investor might follow a dynamic glide path. Instead of blindly following an age-based formula, they would adjust their stock and bond allocation based on market valuations. When the stock market is expensive and euphoria is high, they might accelerate their shift into bonds, even if they are years from retirement. Conversely, if the market crashes and stocks are trading for bargain prices, they might slow their glide path or even temporarily increase their stock allocation to take advantage of the opportunity.
• Human Capital as a “Bond”: Value investors also embrace the concept of human capital. When you're young, your future lifetime earnings are your biggest and safest asset. It behaves like a high-quality bond, providing a steady “coupon” (your salary). Because you already own this massive “bond,” it makes sense to allocate nearly 100% of your financial capital to stocks. As you age, you convert that human capital into financial capital. Your glide path, then, is the process of replacing your disappearing human capital “bond” with actual financial bonds to maintain your desired overall risk level.

Ultimately, whether you choose a simple rule of thumb, a Target-Date Fund, or a more dynamic value-oriented approach, the principle is the same. A glide path is a crucial plan for ensuring your investment journey has a smooth and successful landing.