You should not wait to hit your golden years to start thinking about your future. This is the right time to start investing. Among the many strategies being used today is the “glide path formula,” which involves asset allocation. Its primary target is usually the bonds, cash, and mix of stocks whereby the number of years of an investor is commonly used to determine them.
Unlike many other methodologies, the use of a glide path is somewhat a sure way of accomplishing a smooth landing for retirement. Besides, asset allocation is considered to be more conservative and plays a significant role in the reduction of losses.
There are three major types of glide paths
There are many reasons why the glide path methodology is used to determine asset allocation. Apart from the reliability, it also offers flexibility through the following different formulas: –
Static Glide Path: – Allocations do no change, which means the same targets are used over time, and in the better part of the year, bonds perform better than the stocks.
Declining Glide Path: – It is more applicable when the date of retirement funds is being used as the target. A simple example is whereby a 30year old would have to invest in 70 percent and 30 percent on stocks and bonds, respectively. And given that they have a longer life expectancy, they would choose to have 84 percent and 17 percent for in stock and bonds, respectively.
Rising Glide Path: – It is way above equities, given that it uses a wider approach in the allocation of bonds. And as the bonds grow, there is an increase in the allocation of equities. However, the value of the stocks must not decrease.
How to accomplish investment goals using Glide Path strategy
Due to the reduced allocation of common stocks, the glide path is extensively safer than a majority of other investment methods. It is also simple because it brings together passive and active management of investment objectives. Additionally, investors can use it as a long-term investment tool, and they do not have to time the market to invest.