Portfolio a alokace
Glide Path: How to Gradually Reduce Portfolio Risk as Your Goal Approaches
Key takeaways
- A glide path protects the investor from withdrawing money just after a major market downturn.
- The shift from equities to bonds should be gradual — not one-off, not panic-driven.
- Typical rule: 5–10 years before the goal, start reducing the equity component by 5–10 percentage points per year.
- Target date funds automate the glide path but usually carry a higher TER.
- For retirement, the glide path does not end on the retirement date — it continues for another 20–30 years.
A glide path is a planned transition from a growth (equity) portfolio to a more conservative (bond) portfolio as the date of withdrawal approaches. The goal is protection, not return maximisation.
Why the glide path exists
Imagine you have saved for retirement your whole life and a year before you retire markets fall 40%. If you hold a 100% equity portfolio, you suddenly lose 40% of what you have accumulated and cannot wait another 10 years for a recovery. The glide path eliminates this scenario by gradually reducing portfolio volatility in the critical period.
How to set up a glide path in practice
A simple rule: 5–10 years before the goal, start moving 5–10 percentage points per year from equities into bonds or monetary instruments. Example:
- 10 years before the goal: 90% equities, 10% bonds
- 7 years before the goal: 70% equities, 30% bonds
- 5 years before the goal: 60% equities, 40% bonds
- 2 years before the goal: 40% equities, 60% bonds/cash
Target date funds as an alternative
Target date funds (e.g. "Target 2045") change the allocation automatically. You pay a higher TER (typically 0.10–0.35% above a plain ETF), but you eliminate manual rebalancing. They are less widespread in Europe than in the US, but they are available.
Glide path for different goals
The same principle applies to shorter goals — a home purchase in 5 years, a child's education. Start with a higher equity component for return. Finish with a predominance of safe instruments. Connect this with how to build a portfolio from the start and with the models for different risk profiles in the next article.
FAQ
What is a glide path in simple terms?
A planned, gradual reduction of portfolio risk as the withdrawal date approaches. Typically a transition from dominant equities to bonds and monetary instruments in the last 5–10 years before the goal.
When should you start a glide path?
Generally 5–10 years before the planned withdrawal. The greater the risk in the portfolio and the less you can afford a loss, the earlier you start. For retirement with a horizon of 25+ years, begin the transition approximately 10 years before you retire.
Is a target date fund or a self-managed glide path better?
It depends on your preferences. A self-managed glide path is cheaper (lower TER), but requires annual manual rebalancing. A target date fund automates this at the cost of a slightly higher fee. For investors who do not want to manage the details, automation is usually the better choice.
Does a glide path apply to shorter goals (a home in 5 years)?
Yes. With a 5-year horizon, the starting point could be 60–70% equities, 30–40% conservative component. Two years before withdrawal, move to 20–30% equities. The goal is the same: protect accumulated savings from a drawdown just before withdrawal.