What this tool does
The Portfolio Income Stability Score calculator evaluates how reliable and resilient your investment income stream is across market conditions. It analyzes your portfolio holdings based on four key dimensions: sector diversification, asset type mix, income concentration, and sector quality. Each dimension receives a score from 0 to 100, and these are combined using a weighted formula to produce an overall stability score. A higher score indicates that your income sources are well-distributed across stable sectors and asset types, reducing the risk that a downturn in any single area will significantly impact your total income. This tool is especially valuable for investors who depend on dividends, bond interest, REIT distributions, and other forms of passive investment income to cover living expenses or supplement other earnings.
How it calculates
The overall stability score is computed as: StabilityScore = (DiversificationScore x 0.3) + (AssetMixScore x 0.3) + (ConcentrationScore x 0.2) + (SectorQualityScore x 0.2). The Diversification Score measures how many unique sectors your holdings span, awarding higher scores for broader sector representation out of 12 possible sectors. The Asset Mix Score evaluates the variety of asset types in your portfolio (stocks, bonds, ETFs, REITs) and weights them by their historical income stability. The Concentration Score uses a Herfindahl-Hirschman Index inspired approach, calculating the sum of squared income shares to penalize portfolios where a single holding dominates total income. The Sector Quality Score assigns stability ratings to each sector based on historical income reliability, with utilities and consumer staples rated highest and energy and technology rated lower, then computes an income-weighted average. Each sector has a predefined stability rating: Utilities (95), Bonds/Fixed Income (92), Consumer Staples (90), Healthcare (80), Real Estate (70), Financials (65), Industrials (60), Materials (55), Communication (50), Consumer Discretionary (45), Technology (40), and Energy (35).
Who should use this
Retirees and pre-retirees who depend on portfolio income to cover monthly expenses. Dividend growth investors building a long-term income stream who want to assess portfolio risk. Financial advisors evaluating client portfolios for income reliability and recommending rebalancing strategies. Self-directed investors managing their own retirement accounts who need an objective assessment of income diversification. Income-focused fund managers benchmarking portfolio construction against stability best practices. Anyone transitioning from accumulation to distribution phase investing who wants to ensure their income sources are robust enough to withstand sector-specific downturns.
Worked examples
Example 1: A retiree holds three positions: a utility ETF paying \$6,000 per year, a consumer staples stock paying \$3,000, and a bond fund paying \$4,000. This portfolio spans 3 sectors (Utilities, Consumer Staples, Bonds/Fixed Income) with 3 asset types (ETF, Stock, Bond). The total income is \$13,000. Sector quality is high because all three sectors have stability ratings above 90. Concentration is moderate since the largest holding is 46% of income. The overall score would be approximately 75 out of 100, reflecting good sector quality but room for improvement on diversification and concentration. Example 2: An investor has five holdings all in technology stocks, each paying \$2,000 per year. Despite having five positions, the portfolio only spans one sector and one asset type. The concentration score would be decent (equal split), but the diversification score would be very low (only 1 out of 8 target sectors), asset mix score would be limited (only stocks), and sector quality would be low (technology rated at 40). The overall score would be around 30 out of 100, indicating significant income instability risk.
Limitations
Sector stability ratings are based on historical averages and may not reflect current market conditions or future sector performance. The tool does not account for individual company risk within a sector; a portfolio of highly-rated utility companies and a portfolio mixing strong and weak utility companies would score the same. Currency risk for international holdings is not considered. The tool assumes static income figures and does not project future income changes, dividend growth rates, or potential dividend cuts. Tax implications of different income sources (qualified versus ordinary dividends, tax-exempt bond interest) are not factored into the stability assessment. The scoring model weights the four components equally in pairs (30/30/20/20), which may not match every investor's risk priorities. Bond credit quality is not differentiated; high-yield bonds and investment-grade bonds receive the same sector stability rating.
FAQs
Q: What is a good stability score? A: Scores above 70 are considered good, indicating a well-diversified income portfolio with stable sector exposure. Scores between 45 and 70 suggest moderate risk with room for improvement. Scores below 45 indicate significant concentration or volatility risk that should be addressed.
Q: Why are utilities and consumer staples rated higher than technology? A: Utilities and consumer staples companies historically maintain more consistent dividend payments because they provide essential services and products with steady demand regardless of economic conditions. Technology companies tend to reinvest profits into growth and may cut or eliminate dividends during downturns.
Q: Should I aim for 100? A: A perfect score of 100 is extremely difficult to achieve and may not be necessary. It would require holdings across nearly all sectors, multiple asset types, with perfectly even income distribution and heavy weighting toward the most stable sectors. A score in the 70-85 range typically represents an excellent income portfolio.
Q: Does this replace a financial advisor? A: No. This tool provides a quantitative snapshot of portfolio income stability but does not account for your complete financial situation, tax circumstances, risk tolerance, or long-term goals. Use it as one input alongside professional financial advice.
Q: How often should I check my score? A: Reviewing your score quarterly or whenever you make significant portfolio changes is a good practice. Market movements and dividend changes can shift your sector allocations over time even without active trading.
Explore Similar Tools
Explore more tools like this one:
- Dividend Income Calculator — Calculate your monthly and annual passive income based... - Dividend Snowball Growth Simulator — Visualize how reinvesting dividends compounds your... - Portfolio Building for Creatives — Build a standout creative portfolio with this checklist... - Adjusted Gross Income Calculator — Estimate adjusted gross income after above-the-line... - Annual Income Calculator — Add salary and hourly sources to see total annual income...