Unit 2 · Level 3 · Asset allocation
The glide path
A 25-year-old and a 60-year-old shouldn't hold the same mix. Not because one is braver, but because one has 40 years to recover from a crash and the other has five. The slow shift from mostly-stocks toward mostly-bonds over decades is called a glide path, like a plane descending gently toward the runway of retirement.
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What you get asked
WHY should a 60-year-old usually hold fewer stocks than a 25-year-old?
It's arithmetic, not courage. After 2008's roughly 57% fall, the S&P took about five years to regain its peak: trivial at 25, potentially devastating at 64.
Arrange a typical glide path from early career to retirement
The descent is gradual, with no single scary switch-over day. Target-date funds automate exactly this curve.
An old rule of thumb suggests holding roughly '110 minus your ___' as your percentage in stocks.
At 30 that's ~80% stocks; at 60, ~50%. It's a napkin sketch, not a law, but it captures the direction: horizon shrinks, stocks shrink.
What is a target-date fund?
You pick a fund labelled with a year like 2055; it starts stock-heavy and de-risks as the date nears. One decision, decades of autopilot. Check its fees, as always.
Nina is 30 but loses sleep over every 10% dip. Should she still hold the 'age-appropriate' 80% stocks?
Rules of thumb set the starting point; your real risk tolerance fine-tunes it. The best allocation is the boldest one you'll actually hold through a crash. 🐜
The rest of this unit
The mix of stocks and bonds decides more than any hot pick ever will.