Experts at SLGI Asset Management discuss the art and science behind crafting glidepaths that ensure robust retirement outcomes
In a leader profile article by Wealth Professional, Chhad Aul and Jason Zhang of SLGI Asset Management explain that the design of target-date funds plays a crucial role in guiding plan members through the stages of wealth accumulation, preservation, and sustainable income.
These funds are structured around a “glidepath” which adjusts the investment strategy over time, aiming to balance risk and growth opportunities appropriately.
Chhad Aul, the chief investment officer at SLGI Asset Management, describes the construction of the glidepath as the most crucial aspect of target-date fund design due to its significant impact on members' wealth.
During the early phases, the focus is on building assets, while later stages prioritize wealth protection and preparation for retirement, known as decumulation.
Aul and his colleague, Jason Zhang, a seasoned portfolio manager, also consider various risks associated with investing. Market risk refers to the volatility that can affect asset growth, while sequence risk involves the timing of withdrawals, which can be detrimental during market downturns.
Longevity risk is becoming increasingly relevant as people live longer, requiring funds that last through extended retirement years.
Inflation risk is another critical consideration, especially with rising inflation rates impacting the real value of savings. To manage these risks, the team at SLGI employs various metrics and stress tests designed to evaluate and strengthen the glidepath.
These tests measure potential outcomes and help ensure that the funds can support plan members through retirement.
Aul and Zhang believe that designing an effective glidepath is both a scientific and artistic process, requiring a deep understanding of risk management and strategic planning to ensure that retirees can enjoy a financially secure and fulfilling retirement.
