Glide Path: Why Your Stock Share Should Shrink as You Age, and How Fast
7 min read
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7 min read
Two people lose 30% on their stocks in the same crash. One is 30 years old. The other is 64 and plans to retire next year.
The 30-year-old has 35 years to recover. The 64-year-old does not. Same crash, very different damage.
That gap is why many retirement plans use a glide path. A glide path is a planned schedule that lowers your share of stocks as you get older. This post explains how it works, who builds one for you, and how fast it should slow down.
Think of a plane coming in to land. It does not drop from the sky. It slides down on a planned slope.
A glide path does the same with your money. When you are young, most of your savings sit in stocks, which can grow fast but also fall hard. As you near retirement, the plan moves some money into bonds and cash. A bond is a loan you give to a government or company that pays you interest. Bonds usually swing less than stocks.
The shift happens by schedule, not by mood. You do not need to guess the market.
Because of time. Stocks can fall 30% or more in a bad year. A young investor can keep adding money and wait. An investor about to spend the money cannot wait as long.
The first years of retirement matter most. A crash right before or after you stop working hurts more than a crash 20 years later. This risk has a name, which we explain in our sequence of returns post.
A glide path tries to lower that risk without giving up all growth.
Here is NetWort's own arithmetic. The numbers are made up to show the shape of the problem. They are not a forecast and not a recommended mix.
Say stocks fall 30% and bonds stay flat. Both people hold Rp1 billion.
| Stock share | Loss on Rp1 billion | |
|---|---|---|
| Age 30, 90% stocks | 90% | Rp270 million (27%) |
| Age 64, 90% stocks | 90% | Rp270 million (27%) |
| Age 64, 50% stocks | 50% | Rp150 million (15%) |
The loss is simple: stock share times 30%. At 90% stocks, the portfolio falls 27%. At 50% stocks, it falls 15%.
For the 30-year-old, a 27% drop is a bad year with decades left to recover. For the 64-year-old, the same drop lands just as withdrawals begin. The lower stock share cuts the hit by Rp120 million.
A target date fund is a mutual fund that runs a glide path for you. You pick the fund that matches the year you plan to retire. The fund manager does the shifting.
For example, a 2050 fund suits someone who plans to retire around 2050. It starts with a lot of stocks and moves toward bonds over the years.
Vanguard's Target Retirement 2050 fund description shows a real glide path. It holds 90% stocks until 25 years before retirement. Then it falls to 30% stocks seven years after retirement. Those figures come from search summaries of Vanguard's fund materials, which we could not open in full. Check the fund documents for the current numbers.
Not every glide path stops at the same place. This is the most important choice inside a target date fund.
Morningstar's survey, as summarised by trade press, found "through" funds held about 49% in stocks at retirement on average. "To" funds held about 33%. That gap looks odd at first. A "through" fund holds more stocks at the date, because it expects to keep investing for many more years.
Morningstar also found no industry agreement on which design is better. So the label matters less than knowing what your fund does after the target date.
There is no single right speed. Different providers pick different starting points and slopes.
Below is an illustrative schedule that NetWort made up to show the idea. It is not a recommendation.
| Age | Stock share | Bond and cash share |
|---|---|---|
| 25 to 40 | 90% | 10% |
| 45 | 80% | 20% |
| 50 | 70% | 30% |
| 55 | 60% | 40% |
| 60 | 50% | 50% |
| 65 | 40% | 60% |
| 70 and up | 30% | 70% |
In this example, the stock share drops 10 points every five years from age 40. The pace is a choice. A faster slope gives more safety and less growth. A slower slope does the opposite.
Your own pace depends on how many years you have, how steady your income is, and how much loss you can live with.
One well known study argues the opposite.
Wade Pfau and Michael Kitces published "Reducing Retirement Risk with a Rising Equity Glide-Path" in 2014. Their simulations suggested that starting retirement with a lower stock share, around 20% to 40%, then raising it to about 60% to 80%, could lower the chance of running out of money. We read only summaries of the paper.
The reason is again sequence risk. A low stock share protects you in the dangerous early years. Raising it later helps your money last longer.
The summaries also note two caveats. The benefit shrinks when you assume lower returns. And many retirees find it hard to buy more stocks as they age.
So a falling glide path is common, but it is not the only idea with evidence behind it.
Indonesia has a rule for them. OJK issued regulation POJK 34/2017 on 3 July 2017 for target date funds. According to news summaries, the fund manager must publish a glide path in the fund's prospectus. The stock share can be a fixed number or a range of no more than 20 percentage points. Each stage can last at most five years.
We could not confirm any target date fund currently on sale to the public. Early reports said none had launched yet, and the sources we found are from 2016 to 2018. Check OJK's list of registered funds and the fund manager before assuming one exists.
If you cannot find one, you can build a rough glide path yourself. Choose a schedule, check your mix once a year, and shift it slowly.
Do you know your stock share today? Most people do not, because it moves with prices.
Open the Portfolio Health card on your NetWort dashboard. It shows how risky your portfolio is. Compare that with your age and the years left before you need the money. Ask: if stocks fell 30% next month, would I have time to recover?
For the interest rate and inflation backdrop that moves bond and cash returns, see the macro page.