Traditional age-based models make unrealistic assumptions about investors’ risk tolerance. These models assume that all young investors have a high risk tolerance and that all retirees are risk-averse. However, this is not always the case. Many young investors are actually quite risk-averse, and some retirees may be comfortable with more risk than others. The flight path model takes into account an individual’s risk tolerance and adjusts their asset allocation accordingly. The flight path model fixes two issues that are inherently flawed with other age-based models.

First, it gradually increases a new investor’s allocation to equity, which increases the probability that they will stay the course in a turbulent market.

Second, since we don’t know how long retirement will be because we don’t know how long we’ll live, the flight path model offers a fixed allocation after retirement.