Why Glide Paths Evolve: 'Will-Do' Glide Paths

Abstract

This is the second article of a two-part series entitled “Why Glide Paths Evolve.” The series discusses one of the most fundamental questions of optimal glide path design – should optimal glide paths be evolving or stationary?

The first article presented a framework that was based on the principle “any sub-glide path of an optimal glide path should be optimal on its own.” We call the glide paths that follow this principle “expected-to-do” glide paths because they are based on rational expectations of the investor’s future portfolio selections. The article demonstrated that “expected-to-do” glide paths are generally evolving.

In contrast, this article assumes that the investor will always dutifully follow the glide path designed today. We call such glide paths “will-do” glide paths. This article demonstrates that “will-do” glide paths are generally evolving as well.

Keywords: Glide Path, optimal glide path design, commitment driven investing

JEL Classification: G11