Risk score guide

Free guide — no sign-up required

AllocateIQ assigns every screened opportunity a 1–10 composite risk score. Here's exactly how it's built — every base score, every factor, and every delta.

What the score means

1–2

Very low risk

Investment-grade bonds, benchmark ETFs. Stable cash flows with minimal default or price risk.

3–4

Low risk

Infrastructure funds, high-quality dividend stocks with 10+ years of consecutive dividend growth.

5–6

Moderate risk

REITs, BDCs, MLPs, covered call ETFs. Higher yield compensates for elevated payout risk or leverage.

7–8

Elevated risk

Mortgage REITs, royalty trusts, highly leveraged or yield-trap candidates. Due diligence required.

9–10

High risk

Multiple severe risk factors present. Yield may be unsustainable. Suitable only for speculative allocation.

Step 1 — Asset class base score

Every asset starts with a base score determined by its asset class. Factor adjustments are applied on top.

Asset class	Base score	Note
Benchmark (e.g. SPY, AGG)	1	Reference only — no income weighting
Bond ETF	3	Fixed coupon, investment-grade
Infrastructure fund	3	Regulated monopoly cash flows
Dividend stock	5	Equity risk, variable dividend
REIT	5	90% distribution rule, real estate leverage
Covered call ETF	5	Capped upside, premium income
BDC	6	Leveraged lending to mid-market companies
MLP	6	Energy infrastructure, K-1 tax complexity
Listed private equity	6	NAV discount/premium volatility
Private real estate	6	+2 illiquidity delta applied on top
Private credit	6	+2 illiquidity delta applied on top
Mortgage REIT	7	Interest rate and credit spread exposure
Royalty trust	7	+1 depletion delta applied on top

Step 2 — Factor adjustments

Each factor adds or subtracts points from the base score. Missing data contributes 0 — no penalty for unavailable fields.

Factor	Condition	Delta
Payout ratio	Above class danger threshold	+2
Payout ratio	Above class high threshold	+1
Payout ratio	Below class safe threshold	−1
Debt-to-equity	> 5.0×	+2
Debt-to-equity	> 2.5×	+1
Debt-to-equity	< 0.5×	−1
Beta	> 2.0	+2
Beta	> 1.5	+1
Beta	< 0.5	−1
Dividend growth years	≥ 25 consecutive years	−2
Dividend growth years	≥ 10 consecutive years	−1
Dividend growth years	0 years (no growth)	+1
EPS coverage	EPS ≤ 0 (dividend not covered)	+2
EPS coverage	EPS < annual dividend per share	+1
52-week position	Within 10% of 52-week high	+1
Yield trap	Yield spread vs class median > 5%	+2
Yield trap	Yield spread vs class median > 3%	+1
NAV premium/discount	Premium > 50%	+2
NAV premium/discount	Premium > 20%	+1
NAV premium/discount	Discount > 15%	−1
Return of capital	ROC% > 60% of distribution	+2
Return of capital	ROC% 30–60% of distribution	+1
Illiquidity	Private real estate or private credit	+2
Depletion	Royalty trust	+1

Example — BDC with elevated risk

Here's how the score is built for a BDC with a 130% payout ratio, 3× debt-to-equity, and beta of 1.6:

BDC base score

Payout ratio 130% (above BDC danger threshold of 120%)

Debt-to-equity 3.0× (> 2.5×)

Beta 1.6 (> 1.5)

Final score (clamped to 10)

= 10

Scores are clamped to [1, 10]. A score of 10 means at least two severe factors are compounding on an already high-risk asset class.

See live risk scores for 200+ screened income opportunities.

Start free with AllocateIQ