Glide Path

AAA

DEFINITION of 'Glide Path'

Refers to a formula that defines the asset allocation mix of a target date fund, based on the number of years to the target date. The glide path creates an asset allocation that becomes more conservative (i.e., includes more fixed-income assets and fewer equities) the closer a fund gets to the target date.

INVESTOPEDIA EXPLAINS 'Glide Path'

Target date funds have become very popular among those who are saving for retirement. They are based on the simple premise that the younger the investor, the longer the time horizon he or she has and the greater the risk he or she can take to potentially increase returns. A young investor's portfolio, for example, should contain mostly equities. In contrast, an older investor would hold a more conservative portfolio, with fewer equities and more fixed-income investments.

Each family of target date funds will have a different glide path, which determines how the asset mix changes as the target date approaches. Some have a very steep trajectory, becoming dramatically more conservative just a few years before the target date. Others will take a more gradual approach.

The asset mix at the target date can be quite different as well. Some target date funds assume that the investor will want a high degree of safety and liquidity, because he or she might use the funds to purchase an annuity. Other target date funds assume that the investor will hold onto the funds, and will therefore include more equities in the asset mix, reflecting a longer time horizon.

RELATED TERMS
  1. Target-Date Fund

    A mutual fund in the hybrid category that automatically resets ...
  2. Asset Allocation

    An investment strategy that aims to balance risk and reward by ...
  3. Time Horizon

    The length of time over which an investment is made or held before ...
  4. Life-Cycle Fund

    A special category of balanced, or asset-allocation, mutual fund ...
  5. Gold IRA

    Definition of Gold IRA
  6. Compound Annual Growth Rate - CAGR

    The year-over-year growth rate of an investment over a specified ...
Related Articles
  1. The Pros And Cons Of Target-Date Funds
    Mutual Funds & ETFs

    The Pros And Cons Of Target-Date Funds

  2. Life-Cycle Funds: Can It Get Any Simpler?
    Retirement

    Life-Cycle Funds: Can It Get Any Simpler?

  3. Target Your Retirement With Life-Cycle ...
    Mutual Funds & ETFs

    Target Your Retirement With Life-Cycle ...

  4. Strategies For Withdrawing Retirement ...
    Options & Futures

    Strategies For Withdrawing Retirement ...

comments powered by Disqus
Hot Definitions
  1. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  2. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  3. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  4. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  5. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  6. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
Trading Center