Ionel Van den Berg @Lazacoin: "Understanding My Risk Score Since restructuring..."

Netherlands

Understanding My Risk Score Since restructuring my portfolio, my eToro Risk Score has temporarily increased from 5 to 6. I've received a few questions about that, so I thought it would be useful to explain how I look at risk. 📊 What is the eToro Risk Score? The Risk Score is eToro's way of estimating how risky a portfolio has been based on its historical stats. I don't see it as a prediction of future returns. Instead, it's a snapshot based on factors such as volatility, concentration, diversification and the use of leverage. That's useful information, but it's only part of the picture. A model can't judge the quality of a business, the strength of its competitive position or the conviction behind an investment.Those things still require human judgment. 🤔 Is a Lower Risk Score Always Better? I don't think so. Imagine two portfolios. Portfolio A owns five companies and has a Risk Score of 4. Portfolio B owns twenty two companies and has a Risk Score of 6. Without looking at the actual businesses, can you really say which one is safer? Personally, I don't think it's that simple. Business quality, diversification, balance sheets and long-term growth prospects matter just as much as a numerical score. That's why I use the Risk Score as a guideline, not as the only measure of risk. 🎯 My Current Position Historically, this portfolio has maintained a Risk Score around 4-5. Following the recent restructuring and the naturally higher volatility of some growth positions, it has temporarily increased to 6. I'm comfortable with that. My long term goal is to return to a stable Risk Score around 5, but I won't force that outcome by selling great businesses. Instead, I follow a predefined set of portfolio rules. Exceptional businesses are allowed to compound naturally within their predefined allocation ranges. Only when a position becomes disproportionately large and concentration risk starts to outweigh the potential upside will I review it. If necessary, I'll trim the position back toward the top of its 'comfort zone', not because it performed well, but because managing concentration risk is part of disciplined investing. 💰 Why This Matters One important reason is my tactical bond allocation. Under normal market conditions, around 15% of the portfolio is held in short term bonds. That gives me liquidity to take advantage of major market corrections.If valuations become stretched or markets turn overly optimistic, I may gradually increase that allocation toward 20%. Ironically, market corrections are also the moments when the Risk Score usually rises because volatility increases across the market. As a Popular Investor, I also have to stay within eToro's risk limits. Keeping my Risk Score around 5 gives me enough flexibility to deploy that liquidity when opportunities arise. 🌍 Risk Is More Than Volatility To me, risk isn't simply about price swings. Real risk is owning businesses you don't understand.Real risk is paying too much for mediocre companies.Real risk is having no plan when markets fall.Volatility is simply part of investing. With a clear strategy and predefined rules, it's something to manage, not something to fear. . How do you look at risk? Do you mainly focus on volatility, concentration or the quality of the businesses you own? I'd love to hear your thoughts. Let's go! — Ionel $TSM (Taiwan Semiconductor Manufacturing Co Ltd - ADR) $PLTR (Palantir Technologies Inc.) $RHM.DE (Rheinmetall AG) $IONQ (IONQ Inc) $NSDQ100

Not investment advice. The author may have financial interests in the mentioned instruments.