Definition
Glide Path
A glide path is a planned, gradual shift in your asset allocation from higher-risk to lower-risk investments as you approach a financial goal or retirement date.
Far from a deadline, you hold more equity to capture growth; as the date nears, you steadily move toward debt and cash to protect what you have accumulated. This is the engine inside target-date and many retirement funds, and it can be applied to any goal — for instance, de-risking a child's education corpus in the final two or three years.
The glide path manages the danger that a market crash just before you need the money could devastate an all-equity pot. Designing one means deciding the starting and ending equity proportions and the pace of the shift, ideally rebalancing in steps rather than all at once.
Related terms
- Asset-Liability MatchingAsset-liability matching is the practice of aligning the timing and risk of your investments with the timing of the expenses (liabilities) they are meant to fund.
- Bucket StrategyThe bucket strategy is a way of organising retirement or goal savings into separate 'buckets' by time horizon — short, medium and long term — each invested according to when its money is needed.
- Sequence-of-Returns RiskSequence-of-returns risk is the danger that poor investment returns early in retirement — when you are withdrawing money — can permanently damage your portfolio, even if average returns are fine.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.