Glide Path Investing

Glide-path investing is a investment strategy that involves gradually adjusting the asset allocation of an investment portfolio over time. The goal of glide-path investing is to provide a disciplined approach to asset allocation that is tailored to the investor's specific circumstances, such as their risk tolerance, investment horizon, and financial goals.

One of the key benefits of glide-path investing is that it allows investors to take a more proactive approach to asset allocation. Rather than adopting a static asset allocation that remains unchanged over time, a glide-path strategy allows investors to gradually adjust their portfolio as their circumstances change.

For example, a glide-path strategy for a young investor may start with a higher allocation to riskier assets such as stocks, with the intention of gradually shifting towards a more conservative asset allocation as the investor approaches retirement. This approach allows the investor to potentially benefit from the potential for higher returns on riskier assets while also taking a more conservative approach as they approach their financial goals.

There are several different approaches to glide-path investing, and the specific strategy that is appropriate for any individual investor will depend on their specific circumstances. Some common glide-path strategies include:

• Age-based glide paths: Age-based glide paths involve adjusting the asset allocation of a portfolio based on the investor's age. For example, a young investor may have a higher allocation to stocks, while an older investor may have a higher allocation to bonds.
• Target date funds: Target date funds are mutual funds or exchange-traded funds that are designed to provide a diversified portfolio of assets with a specific investment horizon, such as retirement. The asset allocation of a target date fund will typically become more conservative as the target date approaches.
• Customized glide paths: Customized glide paths allow investors to develop a customized asset allocation strategy based on their specific circumstances and financial goals. This approach may be suitable for investors with more complex financial situations or specific investment objectives.

It is important for investors to keep in mind that glide-path investing is not a one-size-fits-all approach, and the specific strategy that is appropriate for any individual investor will depend on their specific circumstances.

Overall, glide-path investing can be a useful approach for investors who are saving for long-term goals, such as retirement, and who are looking for a disciplined way to manage their asset allocation over time. By gradually adjusting their portfolio as their circumstances change, investors can potentially benefit from the potential for higher returns on riskier assets while also taking a more conservative approach as they approach their financial goals.

Asset Allocation

Asset allocation is a fundamental principle of investment management that involves the strategic distribution of assets among various asset classes in order to achieve a desired level of risk and return. The goal of asset allocation is to diversify a portfolio in order to balance risk and reward, and to meet the specific investment goals of the individual or organization.

There are many different approaches to asset allocation, and the specific mix of assets will depend on the investor's risk tolerance, investment horizon, and financial goals. For example, a young investor with a long time horizon and a high risk tolerance may have a portfolio that is heavily weighted towards stocks, while an older investor with a shorter time horizon and a lower risk tolerance may have a portfolio that is more heavily weighted towards bonds.

One of the key considerations in asset allocation is the trade-off between risk and return. Stocks, for example, tend to have higher returns over the long term, but also carry more risk in the short term. Bonds, on the other hand, tend to have lower returns, but also carry less risk. By diversifying a portfolio across different asset classes, an investor can potentially reduce the overall risk of the portfolio, while still seeking to generate attractive returns.

There are several different asset classes that an investor may consider as part of an asset allocation strategy. These include:

• Stocks: Stocks represent ownership in a company and may provide the potential for capital appreciation as well as dividend income. There are several different types of stocks, including common stocks, preferred stocks, and microcap stocks.
• Bonds: Bonds are debt securities that are issued by governments, municipalities, and corporations in order to raise capital. When an investor purchases a bond, they are effectively lending money to the issuer in exchange for regular interest payments and the return of principal at maturity.
• Cash and cash equivalents: Cash and cash equivalents include assets that are easily converted into cash and have a low risk of loss, such as money market funds and short-term government bonds.
• Alternative investments: Alternative investments include asset classes such as real estate, commodities, and hedge funds that are less correlated with traditional financial markets.

In addition to these traditional asset classes, investors may also consider allocating assets to more specialized strategies, such as socially responsible investing or impact investing, which seek to align investment decisions with an investor's values and social or environmental goals.

The specific asset allocation of a portfolio will depend on a number of factors, including the investor's risk tolerance, investment horizon, and financial goals. An investor's risk tolerance refers to their willingness to accept fluctuations in the value of their portfolio in exchange for the potential for higher returns. An investor with a high risk tolerance may be more comfortable with a portfolio that is heavily weighted towards stocks, while an investor with a low risk tolerance may prefer a portfolio that is more heavily weighted towards bonds and other lower-risk assets.

The investor's investment horizon, or the length of time they plan to hold their investments, is also an important consideration in asset allocation. An investor with a longer investment horizon may be able to tolerate more volatility in the short term in exchange for the potential for higher long-term returns. On the other hand, an investor with a shorter investment horizon may need to prioritize stability and capital preservation over potential returns.

Finally, an investor's financial goals will also play a role in determining their asset allocation. For example, an investor who is saving for retirement may have a different asset allocation than an investor who is saving for a down payment on a home.

Journey (Part 1)

Rewind to 1997.

I had joined my first job in the middle of June.  

Received the first salary by the end of June.  Prorated to the number of days I was in the job that month.

Looking at the payslip - such a nice thing! Felt elated. Found myself in very high spirits.  

Since then, I have been saving money.  A substantial part of earning - a minimum 40% was going into savings.

The savings were in low single digit thousand multiples.

They appear small by today's standards! Well - those were the days of lower income, and much lesser expenses.

I did not know what I could do with the month-end savings. 

The place of my work was 500km away from my hometown, where my father and family were living. I kept on handing over the surplus-in-my-had to my father - a demand draft by registered post.  Those were the days!  Forget the modern day conveniences - UPI, IMPS, NEFT, RTGS. A simple account-to-account money transfer was practically impossible, even when the accounts were maintained in the same Bank across branches.

Upon receipt of the DD, my father would inquire interest rates across multiple Banks.  He would buy Fixed Deposits from whichever Bank that offered higher interest rates.

In the month of January 1998, my Company had asked me to produce savings proof.  They needed it to calculate my income tax liability for the financial year.   I had no idea what they meant, nor I knew how to act on their request.  Naturally, I passed on the requirement to my dad.  Pretty quickly, he got a PPF account opened on my name. I had to visit my home town on that occasion, and collected PPF contribution slip.

My Company's Finance Department had arranged to file Income Tax Returns that year.

1998, 1999, 2000 - years rolled on.

There were annual rises in my salary over the years. The income tax I needed to pay increased (from a few hundreds to a thousand plus, after exhausting Section 80(c)). In spite of that, my savings amounts increased as well.  The habit of sending DDs to my father every month, didn't change. 

All this time, I had never inquired with my father about the money.  There simply was no need to do that.  After all, my life was chugging along smoothly.  God's grace - my income continued to be well above monthly expenses. Month-end savings were a given.  My father's assistance to deal with the surplus was always available.

Early 2001.

A massive heart attack tried to engulf my father.  It took a stay of 2 weeks in the ICCU; another 1 more week in a standard hospital room for us to have him discharged home.  The agony, stress everyone within our family underwent - can't be described in words.

It was an unexpected incident leaving nothing but a shock to everyone.  Arranging cash at the time of discharge was also not so easy; had to take several petty loans from generous souls within the near & dear neighborhood.

The happy-ending situation took away all other pains.  I was determined to settle the debts over a period of time.

When I returned back to my work place, my Company pleasantly surprised me telling that the employees and their parents were covered by a Corporate Health Insurance Policy.  It was possible to get a major part of the hospitalization costs reimbursed.  All I needed was to collect & submit documentation from the hospital in a prescribed format.

We didn't have a telephone at home - my application was in the BSNL processing queue for an year or so.  I wrote an inland postal letter to my father, mentioning what I gathered; and that I would be reaching hometown in a couple of weeks to get the documentation from hospital. 

My father responded in another inland letter - quoting his happiness and mentioning that he had another surprise for me when I visited home. 

I was so eager to go back to my hometown.  That very evening, I went to the Railway Reservation Center, stood in a hyper-long queue for more than 2.5 hours and had my travel tickets reserved.  No IRCTC those days, no online booking!

...To Be Continued...