Being aware of extended and cyclical market environments can help inform the ongoing development and evaluation of a glide path.
The history of the ﬁnancial markets can be categorized into three distinctive states, each of which has often lasted for multiple years.
Duration percentages of three historical market environments from Jan. 1, 1952 to Dec. 31, 2017. Research uses Fidelity’s Hidden Markov Model (HMM) with Gaussian Mixtures framework (part of Fidelity’s proprietary artificial intelligence and machine learning methodology to identify data-driven market regimes), which assumes there are three structural states or market environments that are more consistent, given historical realized asset class returns data. This framework was used to develop this concept further to apply to our target date strategies. Please see Appendix for a detailed view of this work and analysis.
Source: Fidelity Investments, as of Dec. 31, 2017.