# What Is a Glide Path Formula?

## How to Calculate a Glide Path Formula

The glide path formula is a method for calculating how the asset allocation of an investment portfolio should change over time. The formula typically uses the investor's age or a target year to help determine an appropriate mix of stocks, bonds, and cash.

Most glide path formulas reduce exposure to stocks as targeted age or year approaches. There is no exact formula for your age or time until retirement, but knowing the basic ways you can use glide path formulas will help you plan your investment strategy.

## What Is a Glide Path Formula?

The glide path formula is the name of a method or strategy used for calculating the asset allocation for investment portfolios or target-date mutual funds. The asset allocation is the percentage mix of stocks, bonds, and cash in the portfolio or mutual fund. The target date is typically a year that represents a particular date or decade in which an investor expects to reach their objective, such as retirement.

When investing using a target-date fund, the shift in asset allocation over time is simply called the fund's "glide path."

## How Do You Calculate the Glide Path Formula?

There are three major types of glide paths typically used in determining an appropriate asset allocation for an investment portfolio: Static Glide Path, Declining Glide Path, and Rising Glide Path. Here's how each glide path formula works.

### Static Glide Path

With this glide path, the investor uses the same target asset allocation but will periodically rebalance the portfolio to return to the target allocations.

For example, a common moderate allocation is 65% stocks and 35% bonds. During most calendar years, stocks will outperform bonds, which will skew the allocation toward stocks by the end of the year. At this time, the investor will place the appropriate trades to return the allocation to the original target of 65% stocks and 35% bonds.

### Declining Glide Path

This glide path formula is common with target-date retirement funds, where a target year or decade is used in the formula to determine the asset allocation.

A classic glide path formula is:

100 - Age = Stock Allocation

Therefore, a 30-year-old investor would have an asset allocation of 70% stocks and 30% bonds. With longer life expectancy today, a more common formula is:

100 - Age + 14 = Stock Allocation

Using this formula, a 30-year-old investor would have an allocation of 84% stocks and 16% bonds. At age 31, the allocation would be 83% stocks and 17% bonds.

### Rising Glide Path

The least common glide path, this formula would begin with an allocation more heavily weighted to bonds and would shift more to stocks as the bonds mature. For example, an allocation of 65% bonds and 35% stocks might change to 65% stocks and 35% bonds. As the bonds mature, the investor would purchase equities in the portfolio. Some investment advisors advocate for this strategy as a way to guard against significant losses during the crucial early years of retirement.

## How the Glide Path Formula Works

The easiest way to apply the glide path strategy is to buy a target-date retirement fund. For example, an investor choosing a target-date 2050 fund expects to retire between the year 2050 and 2060.

Since target-date retirement funds are designed to maintain an allocation appropriate for the target year or decade, the asset allocation will need to shift gradually toward a more conservative mix if the investor is maintaining a declining glide path strategy.

A typical target-retirement 2050 fund may have an asset allocation of roughly 80% stocks and 20% bonds. But as the target year approaches, stocks will receive a steadily declining allocation and bonds will receive a steadily increasing allocation. Cash can also become part of the allocation, especially as the target date draws closer.

## Benefits of Glide Path Formulas

Investing with glide path formulas can be a simple, strategic way of combining passive and active management to reach an investment objective. Since stocks have greater market risk than bonds, it's generally wise to decrease exposure to stocks as the time horizon of the objective nears its end. In this common application, a declining glide path can make sense for the investor.

Glide path formulas can prevent investors from attempting to time the market and invest according to market conditions. Since market timing tends to do more harm than good concerning portfolio returns, the glide path formula can be a wise tool for long-term investors.

## Limitations of Glide Path Formulas

Investors should be careful not to rely on a single glide path formula for success. Because investing strategy depends so much on your age, long-term goals, and factors in the market, it's helpful to talk to a financial advisor as you consider any changes in asset allocation before or during retirement.

*The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.*

### Key Takeaways

- Glide path formulas are used for calculating changes in asset allocation in an investment portfolio over time.
- The type of formula you use depends on how close you are to retirement (or how far into it you are), how much you have saved, and your general comfort level with risk.
- This method is commonly used with target-date mutual funds.