# Understanding Glide Paths: Investment Strategies for Target Date Funds

## What Is a Glide Path?

A glide path is the plan that a target date fund follows to automatically adjust its mix of stocks and bonds as it gets closer to its target date. This helps investors by making their portfolio more conservative over time to reduce risk. There are different types of glide paths, such as declining, static, and rising. Each of these types of glide paths offers investors a different strategy for how investments are managed as goals approach.

### Key Takeaways

*   A glide path adjusts the asset mix of a target-date fund as the target date approaches, becoming more conservative over time.
*   Target-date funds are ideal for those planning for retirement, adjusting risk levels based on the investor’s age.
*   Declining glide paths gradually decrease equities and increase safer assets, like Treasury bills, over time.
*   Static glide paths maintain consistent asset allocations, periodically rebalancing to original proportions.
*   Rising glide paths start with more bonds and slowly increase equity exposure as bonds mature.

## Understanding the Mechanics of Glide Paths 

An investment company offers a target-date fund to grow assets over time for a goal like retirement, gradually becoming more conservative. Each target-date fund family has its own glide path that dictates asset mix changes as the target date nears. Some glide paths are steep and become much more conservative just before the target date. Other glide paths change gradually.

The asset mix at the target date can be quite different as well. Some target-date funds assume that the investor desires a high degree of safety and [liquidity](https://www.investopedia.com/terms/l/liquidity.asp) because they might use the funds to purchase an annuity at retirement. Other target-date funds assume that the investor holds onto the funds, and therefore includes more equities in the asset mix, reflecting a longer time horizon.

Target date funds have become popular among those who are saving for retirement. They are based on the simple premise that the younger the investor, or the longer the [time horizon](https://www.investopedia.com/terms/t/timehorizon.asp) before retirement, the greater the risk that one can take on, which increases expected returns accordingly. A young investor's portfolio, for example, should contain mostly equities. In contrast, an older investor would hold a more conservative portfolio, with fewer [equities](https://www.investopedia.com/terms/e/equity.asp) and more fixed-income investments.

## Types of Glide Paths

### Declining Glide Path

An investor who uses a declining glide path gradually reduces their allocation of equities each year they get closer to retirement. For example, at age 50, an investor who holds 40% equities in a portfolio may reduce their equity allocations by 1% each year. They would then increase their allocation of safer assets, such as Treasury bills.

### Maintaining Balance: The Static Glide Path 

A portfolio that uses a static glide path maintains the same allocations. For instance, an investor may hold 65% equities and 35% bonds. If these allocations deviate due to price changes in the assets, the portfolio is re-balanced.

### Increasing Equity Allocation: The Rising Glide Path

Portfolios that use this approach initially have a larger allocation of bonds compared to equities. The equity allocation increases as the bonds mature, as long as the stocks in the portfolio don’t decrease in value. For example, an investor’s portfolio might start with an allocation of 70% bonds and 30% equities. After a large portion of the [bonds](https://www.investopedia.com/terms/b/bond.asp) matures, the portfolio may hold 60% equities and 40% bonds.

## The Bottom Line

A glide path is a plan that changes how your investments are split between stocks and bonds as you get closer to a goal like retirement. The right glide path depends on your personal goals and risk tolerance. If you're younger, you'll hold more stocks. The older you get, you'll shift to safer options. There are different types of glide paths: declining, static, and rising—each offering a different way to manage risk over time. It’s a good idea to talk to a financial professional to find the glide path that suits your needs.