The Glide Path

Glide Path
Glide Path

An investor's risk exposure is systematically adjusted to risk capacity changes by reducing the allocation from stocks to bonds. This is referred to as a glide path strategy. One effective method to glide path a portfolio is though an approximate 1% reduction in the equity allocation of a portfolio per year over a lifetime.1 When young investors start their careers, they are long on human capital and short on financial capital. As investors age, there is an exchange of human and financial capital. Figure 12-2 is a hypothetical illustration of an individual's financial glide path. It illustrates an investor's transition from living off their labor (human capital) to living off their savings (financial capital) with a slow risk reduction over time.

Figure 12-2

    -1 People and Portfolios: Glide Path for Retirement Success Table.
Step 12Glide PathRisk ReductionHuman CapitalFinancial CapitalAgeRetirementTransitionLaborSavings