Glide Path

Posted in Finance, Accounting and Economics Terms, Total Reads: 456
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Definition: Glide Path

Glide path refers to the formula that determines the asset allocation mix for the target date fund. Based on the number of years left for the target date, the glide path can be conservative or non- conservative. As the fund gets closer to the target date, it becomes more conservative i.e. it includes more fixed assets than equities.


They are based on the premise that younger investor (target period is long), can take a greater risk so that he/ she can increase the return. In contrast the older investor will save for the retirement and will indulge in a conservative portfolio.


Every investor has a different glide path. Some may have a steep trajectory and become conservative as the target date approaches while the others may have a gradual behavior. Some target date fund assumes that the investor will hold the stock for a long time and thus would add equities in the mix, while other funds may assume that the investor want high degree of liquidity and safety and would therefore use the fund to purchase annuity. The asset mix at approaching target date can also be quite different.

 

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