What is Glide Path Investing?
According to Wikipedia, glide path refers to a formula that determines the asset allocation of a target date fund, based on the number of years to the target date. The glide path produces an asset allocation that becomes more conservative as the fund gets closer to the target date.
What is the Significance of a Glide Path?
Using an airplane analogy, a glide path investment strategy produces a smooth landing as you approach your retirement date. A more conservative allocation near retirement reduces your risk of big losses (the smooth landing).
What About GlidePath’s Patented Process?
A GlidePath Wealth Management co-founder was awarded a U.S. Patent (8352349; January 8, 2013; patents.uspto.gov) for the methodology in our glide path investment process.
Our unique process integrates the tenets of Modern Portfolio Theory with the disciplines of risk management and liability-driven investing.
It is important to note, these are the investment disciplines that lead to a safer landing before, at, and after a target date. This glide path is safer than other industry glide paths due to a reduced allocation to common stocks.
What is De-Risking?
De-risking is part of the glide path investment process.
For example, target date funds gradually reduce investment risk as you get closer to the target date (the year you retire). De-risking reduces allocations to more aggressive investments (common stocks) and increases allocations to more conservative investments (bonds, cash equivalents).
What About Target Date Funds?
A target date fund is a perfect application for glide path investing as it gradually reduces risk as people age and become more conservative. Target date funds are usually found in 401k plans.
They are exceptionally popular ($2 trillion) with investors who do not want to pick investments and be responsible for changing the allocations. All they select is the target date and the fund does the rest.
What About Target Date Portfolios?
Target Date Funds are mutual funds that pool assets for investment. This means every investor in the fund is treated exactly the same (one-size-fits-all).
GlidePath Wealth Management does not pool assets for investment. Each client has a separate portfolio that uses a glide path that is tailored to their specific needs.
What About GlidePath Wealth Management?
Glide path is an integral part of our investment process when we manage assets that have a variety of purposes and general or specific target dates, such as:
- You buy a second home (2030)
- A child starts college (2035)
- Your retirement date (2045)
- Life span investing (2085)
Assets may be accumulated or preserved for other purposes, but smooth landings are still applicable.