Achieve your financial goals using declining glide path

Glide path is nothing but one of the ways of managing your asset allocation. This method is adopted by global practitioners and is said to be one of the most effective ways to achieve your financial goals. Now the thing to note here is that this is strictly for achieving financial goals and not for generating superlative returns. Hence, do not look at this method from returns’ point of view. There are basically three types of glide paths and declining glide path is one of them.

So, what is declining glide path? Declining glide path is a way of asset allocation wherein, as you near your goal, you can change your asset allocation and make it more conservative in nature. The logic behind this is that, taking more conservative approach as you are about to reach your financial goal, will help your money be protected from the volatility that equity offers in the short-term.

Note: The above graph is just for understanding purpose. The asset allocation would depend on your risk profile.

As you can see in the above graph, your asset allocation becomes conservative once you are nearing your financial goal. Although, like others, this strategy is also not a full-proof strategy as no one can predict how markets will turn out to be. However, among all, with this strategy, you are more likely to achieve your financial goal. We believe that rather than generating more returns, containing the risk is more important. As per various studies carried out in the behavioural finance space, it shows that investors get more anxious with 30 per cent fall in portfolio value than being excited with 30 per cent rise in the portfolio value. Hence, we believe that this strategy would help you to contain risk. Containing risk would ensure timely achievement of your financial goals. However, you need to remember that this method is not completely protected from market shocks. Hence, when you witness any such market shocks, you need to invest an additional amount to achieve your financial goals. At such times, having an additional liquidity comes handy.