Certified Plan Sponsor Professional (CPSP) Practice Exam

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What does a target-date fund "glide path" refer to?

The timeline for rebalancing the portfolio asset allocation from most aggressive to most conservative
The historical performance of the fund over time
The type of assets included in the fund
The fees associated with managing the fund

The correct answer is: The timeline for rebalancing the portfolio asset allocation from most aggressive to most conservative

A target-date fund "glide path" refers to the strategy for adjusting the asset allocation of the fund over time, particularly as the target date (usually retirement) approaches. Initially, the fund will typically have a higher allocation in riskier assets, such as stocks, to take advantage of market growth potential. As the target date nears, the glide path represents a gradual shift toward a conservative allocation, increasing the portion of safer investments, like bonds or cash, to preserve capital and reduce volatility for investors who will soon need to start withdrawing funds. This systematic adjustment is designed to align the risk profile of the fund with the time horizon of the investors, ensuring that they transition into a more conservative approach as they approach their financial goals. The other options do not capture this process of changing asset allocation over time, making the understanding of the glide path crucial for analyzing how target-date funds are managed.