Portfolio Income Diversification Score

Income concentration risk - relying on one source - is the single biggest financial vulnerability for freelancers and small business owners. This calculator scores income diversification using the Herfindahl-Hirschman Index adapted for personal income.

100% from one source: 0 diversity. 50/50 split: 50 diversity. Even 25% across 4 sources: 100 diversity (maximum). The higher the score, the more resilient income becomes to losing any one source.

Aim for 75+ diversity. Multiple clients, multiple income types (services + products + investments), or multiple industries all improve resilience. The tool takes 4 income source percentages - adjust to match your actual mix.

Quick example

With primary income of 60% and secondary income of 25% (plus tertiary income of 10% and other income of 5%), the result is 75/100. Change any figure and watch the output shift — it's often more useful to see the pattern than to memorise the formula.

Which inputs matter most

You enter Primary Income %, Secondary Income %, Tertiary Income %, Other Income %, and Total Annual Income. The rate and the time horizon usually dominate — compounding means a small change in either reshapes the final figure more than a similar shift in contribution size. Test this by doubling one input at a time.

What's happening under the hood

Herfindahl = sum of squared percentage shares. Diversity = (1 - H) × 100 / 0.75 (normalised so 4-way even split = 100). The formula is listed in full below. If the number looks off, you can retrace the calculation by hand — that's the point of showing the working.

Worked example

Suppose a freelancer earns 50,000 annually across four streams:

• Consulting work: 60% (30,000)
• Course sales: 20% (10,000)
• Affiliate commissions: 12% (6,000)
• Ad revenue: 8% (4,000)

The calculator applies the Herfindahl formula: (0.60)² + (0.20)² + (0.12)² + (0.08)² = 0.36 + 0.04 + 0.0144 + 0.0064 = 0.4208. Normalised diversity = (1 − 0.4208) ÷ 0.0075 × 100 = 63/100. This indicates moderate concentration. A shift to 50%, 20%, 15%, 15% would raise the score to 75, reflecting improved balance.

Common scenarios

A solo contractor with one client scores near 0. Adding a second client at 40/60 moves the needle to 48. Diversifying across service types (consulting, training, productised offerings) and income categories (labour, licensing, passive streams) typically lifts scores into the 70–85 range. Highly diversified portfolios with 5+ streams of similar size can approach the 100 maximum.

What this measures and what it does not

The calculator models income concentration risk—how exposed earnings are to the failure or loss of any single source. It does not account for volatility, seasonality, payment timing, or client stability. Two sources may score equally on diversification but differ in reliability. The score also ignores expenses, profit margins, or growth potential. An income stream that is large and declining may appear healthy on this metric but carry hidden risk.

Educational illustration

This calculator offers a numerical framework for thinking about income balance. Results are for illustration and educational purposes. They do not predict actual outcomes or replace ongoing review of cash flow, client dependence, or revenue trends.