Building a portfolio
Glide path
A plan to shift gradually from higher-risk to lower-risk assets as a target date approaches.
How it works
Target-date funds implement a glide path automatically: heavily weighted to equities decades out, moving steadily towards bonds and cash as the date nears.
The logic is that capacity for risk falls as the horizon shortens. A 40% fall twenty years from retirement is a buying opportunity; the same fall two years out is a change of plan.
Where it misleads people
A glide path that ends at the retirement date treats it as an end point. Money may need to last another thirty years afterwards, and de-risking too far too early creates inflation risk in place of market risk.
Related terms
- Asset allocationHow you divide money between asset classes — the decision that drives most of your long-run experience.
- Target-date fundA single fund that automatically shifts from growth assets to defensive ones as a set year approaches.
- Time horizonHow long until you need the money — the single fact that should shape most of your other decisions.
- Sequence-of-returns riskThe risk that poor returns early in retirement do lasting damage, even if average returns are fine.
Mentioned in
More in Building a portfolio
- Home bias
- Fund overlap
- Investment policy statement
- Efficient frontier
- Modern portfolio theory
- Effective number of holdings
- Rebalancing
- Drift
All 20 Building a portfolio terms · The full glossary, 433 terms
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.