Practical Applications of Glide Path Indexes

Abstract

In Glide Path Indexes, from the Spring 2020 edition of The Journal of Index Investing, Ronald Surz of GlidePath Wealth Management discusses how investors can protect their savings as they transition into retirement. Glide path indexes, such as target-date funds (TDFs), vary asset allocations depending on an investor’s age, reducing equity exposure as an individual approaches retirement. But most portfolios following industry-standard paths incorporate too much risk at the wrong time: the years bracketing retirement. If investors are allocated too heavily to equities during those years, they face the risk of liquidating stocks at low prices to produce cash flow for their the initial phase of their retirement. These unfortunate investors then have less to draw from to meet future retirement expenses and much less time to repair overall portfolio damage using income from employment or other sources.

Surz proposes an alternative glide path that uses rigorous risk management and greater diversification to substantially diminish this hazard. To better protect savings, Surz’s approach dramatically lowers equity and long-term bond exposure in favor of safer assets as an investor nears her retirement date. His glide path strategy then gradually incorporates more equity and bond risk as investors move through retirement, so as to revitalize growth potential and extend the life of the investor’s savings.

TOPICS: Wealth management, retirement, mutual fund performance