How to calculate your return and risk target — guide and mini calculator.

📈⚖️ How to Calculate Your Profitability and Risk Target — Guide and Mini-Calculator

In crowdlending, before investing, you must define your profitability target and acceptable risk level. Without this, it is difficult to build an efficient, diversified portfolio that aligns with your actual expectations.

This guide teaches you how to calculate your personal target with simple formulas, numerical examples, and a mini-calculator that you can use without external tools.

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🎯 What is a profitability target?

It is the annual return you expect to achieve from your portfolio, taking into account:

• 📊 Your risk profile
• 🧱 Your diversification across platforms and countries
• 💼 The type of loans you choose
• 🛡️ The quality of the originators

It is not about guessing, but about calculating a realistic goal based on your strategy.

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⚖️ What is a risk target?

It is the maximum level of risk you are willing to take to achieve the desired profitability.

It includes:

• 📉 Maximum tolerated default
• ⏰ Acceptable amount of late loans
• 🌍 Country risk you are willing to take
• 🏦 Exposure to specific originators

Without defining risk, a profitability target is meaningless.

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🧮 How to calculate your profitability target (formula)

You can estimate your target profitability using this simple formula:

Expected Profitability = Σ (%Portfolio per Originator × Profitability of each Originator × (1 – Adjusted Default Risk))

Where:

• %Portfolio: capital distribution
• Profitability: average annual interest of those loans
• Adjusted Default: loss probability based on risk

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🧾 Example: 5-Originator Portfolio

Assume a portfolio diversified as follows:

• 20% at 10% interest — low risk
• 20% at 11% interest — medium risk
• 20% at 12% interest — medium risk
• 20% at 14% interest — high risk
• 20% at 16% interest — high risk

We estimate adjusted default:

• Low risk: 1%
• Medium risk: 3%
• High risk: 6%

Calculation:

• 0.20 × 10% × 0.99 = 1.98%
• 0.20 × 11% × 0.97 = 2.134%
• 0.20 × 12% × 0.97 = 2.328%
• 0.20 × 14% × 0.94 = 2.632%
• 0.20 × 16% × 0.94 = 3.008%

Expected Profitability = 1.98 + 2.134 + 2.328 + 2.632 + 3.008 = 12.082%

➡️ Your realistic target would be ~12% net annual.

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🔢 Practical calculator to use yourself

Fill in these values on your own and apply the formula:

Parameter	Enter your value
% of portfolio in low risk loans	____ %
% of portfolio in medium risk	____ %
% in high risk	____ %
Average interest low risk	____ %
Average interest medium risk	____ %
Average interest high risk	____ %
Adjusted default low	____ %
Adjusted default medium	____ %
Adjusted default high	____ %

Then apply:

(% × Interest × (1 – Default)) + …

The result is your net target profitability.

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⚖️ How to calculate your risk target

Your risk target should be defined by answering these questions:

• 🛡️ How much capital can I lose without compromising my finances?
• 📉 What is the maximum % I accept in default?
• 🌍 Which countries do I accept in my portfolio?
• 🏦 How many originators do I consider safe?
• 📅 Do I invest in short or long terms?

A practical rule:

• Conservative profile: Tolerable default 1–3%
• Moderate: 3–6%
• Aggressive: 6–12%

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🎯 How to combine profitability + risk

Your final target depends on balancing both:

Final Target = Expected profitability compatible with your tolerable risk limit

Example:

• You want 12% profitability
• Your risk limit is 4%

This means:

• 🚫 You cannot have too many 14–16% interest loans
• ✔ You need more weight in the 10–12% range
• ✔ You must prioritize stable countries and strong originators

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🧭 Recommended strategy by profile

✔ Conservative profile (target 8–10%)

• Very solid platforms
• Originators with strong buyback
• Stable countries

✔ Moderate profile (10–12%)

• Mix of medium and low risk
• Diversified countries
• Varied originators

✔ Aggressive profile (12–16%)

• More weight in high-return loans
• Emerging countries
• New or high-yield originators

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🏁 Conclusion

Calculating your profitability and risk target is the first step to creating a solid strategy. You don't need complicated tools: with percentages, average interest, and a risk adjustment, you can estimate a realistic and sustainable return.

A profitable portfolio is not the one that promises the most interest, but the one that balances return and risk intelligently.

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✨ Frequently Asked Questions (FAQ)

Do I have to recalculate my target every year?
Yes, especially if platforms, the economy, or your investment profile change.

Does the risk target change with experience?
Generally yes: advanced investors tolerate more volatility.

Should the "target" profitability be equal to what I get?
Not exactly. It is a benchmark to optimize your portfolio.

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