Category | Description |
1. | Experiment Scope |
Version | 1.0 |
Project Name | The Proportional Portfolio Experiment |
Purpose | The Proportional Portfolio Experiment explores whether predefined exposure limits can help investors build and maintain a crowdfunding portfolio through a structured portfolio construction process.
The framework focuses on portfolio construction rather than investment selection. Instead of identifying the best borrowers, platforms, countries, or asset classes, it uses predefined exposure limits to manage dependency and encourage disciplined allocation decisions.
The experiment uses real money, objective metrics, and public reporting to observe how a rule-based portfolio behaves throughout a full investment cycle.
The methodology was developed independently and is intended for investors who have not yet established their own portfolio construction principles and decision-making process.
The experiment does not attempt to:
Predict future returns.
Identify the safest investments.
Replace investment due diligence.
Replace risk analysis.
Perform loan duration risk assessment.
Guarantee profitability.
Provide investment advice.
Prove that exposure limits outperform other portfolio construction methods. |
Capital at Risk | The methodology presented on this website is part of a public experiment. It is unproven and should not be considered investment, financial, legal, or tax advice.
Capital is at risk and investors may experience delays, defaults, partial losses, or total losses. |
Hypothesis Testing | Can predefined exposure limits help investors develop and maintain a disciplined crowdfunding portfolio construction process throughout a full investment cycle without relying on traditional borrower, loan, or platform risk analysis? |
Simplicity Principle | The framework intentionally prioritizes simplicity.
Exposure limits are based primarily on capital allocation rather than detailed loan characteristics. Variables such as interest rates, loan terms, platform ratings, expected losses, and recovery assumptions are not used to determine exposure limits in Version 1.
The objective is to provide a practical framework that remains understandable and usable without advanced portfolio construction knowledge.
Future versions may introduce additional variables if supported by observations from the experiment. |
Scope | The experiment is limited to euro-denominated crowdfunding and P2P investments available to retail investors.
All investments must comply with the framework's exposure limits and proportional principles.
Investments with contractual maturities exceeding the planned experiment duration are excluded.
The investment universe may evolve over time as new platforms and investment products become available. |
Duration | 36 months |
Starting Capital | € 1,000 |
Monthly Contribution | €50 for the first 18 months. Afterwards: Reinvest repayments, interest and bonuses. |
Return Target | Estimated Portfolio XIRR ≥ 8%
The portfolio must maintain an Estimated Portfolio XIRR of at least 8% throughout the active phases of the experiment.
Assuming long-term average inflation of 3%, the target represents a minimum real return of approximately 5%.
The 8% threshold serves as a portfolio construction requirement rather than a performance objective. |
Reporting | Weekly portfolio updates.
Monthly portfolio reviews and key observations.
Public documentation of any intentional framework overrides.
Public documentation and versioning of material methodology changes. |
Expected Outcome | The primary outcome of the experiment is a better understanding of portfolio construction within crowdfunding and P2P investing.
The experiment aims to generate practical insights into portfolio discipline, exposure management, concentration, and portfolio behaviour throughout a full investment cycle.
Observations from the experiment may help investors identify structural portfolio weaknesses and support the development of their own portfolio construction principles and decision-making process.
Portfolio performance, Health Score, Default Rate, dependency metrics, and concentration observations are reported as outcomes of the experiment rather than measures of success or failure. |
Early Exit | The experiment is intended to run for 36 months.
Early termination will only occur if continuation becomes impractical or impossible due to legal, operational, financial, or personal circumstances.
Any early termination, along with the circumstances leading to the decision, will be publicly documented.
Portfolio results, observations, and lessons learned up to the termination date will remain part of the experiment's recorded outcomes. |
2. | Proportional Portfolio Construction Methodology |
Methodology Disclosure | This public methodology provides an overview of the framework's objectives, principles, and decision-making process.
The purpose of this page is to explain how the framework operates conceptually and support the transparency of the public experiment.
Significant time and effort have been invested in researching, developing, documenting, and testing the methodology. For this reason, additional methodology documentation, implementation guidance, worked examples, supporting materials, templates, and version updates may be made available separately to support the continued development of the initiative.
The public version intentionally discloses the experiment structure, allocation process, metrics, and Allocation Score methodology. However, certain implementation details related to the Tactical Proportional Principle and Strategic Proportional Principle are reserved for the complete methodology package.
The complete methodology package is intended to complement the public experiment rather than replace it. The objective is to keep the core concepts publicly understandable while providing enthusiasts and supporters with deeper implementation guidance and additional supporting resources.
Support for the initiative is appreciated but never required. |
Proportional Principles | The framework is governed by two proportional principles.
The Tactical Proportional Principle manages dependency at the borrower level.
The Strategic Proportional Principle manages dependency at the portfolio level.
Together, these principles define the maximum exposure that can be allocated to individual borrowers, platforms, countries, and asset classes.
1. Tactical Proportional Principle
Limit dependency on individual borrowers.
The Tactical Proportional Principle uses a predefined proportional exposure limit to reduce dependency on individual borrowers.
The methodology seeks to ensure that no single borrower can disproportionately influence portfolio outcomes.
2. Strategic Proportional Principle
Limit dependency on portfolio-level exposures. The principle seeks to prevent excessive concentration and define maximum exposure limits within a single platform, country, asset class, or maturity category.
The Strategic Proportional Principle uses predefined proportional exposure limits to reduce dependency on portfolio-level concentrations.
Exposure limits are derived from the available opportunity set and portfolio structure.
The framework does not attempt to identify the best investments. Instead, it seeks to answer how much of the portfolio depends on a single borrower, a single platform, a single country, a single asset class or a maturity category.
The objective is to reduce dependency through predefined exposure limits while maintaining a minimum estimated Portfolio XIRR. |
3. | Portfolio Framework |
Portfolio Lifecycle | 1. Build (Months 0-6)
Objectives:
Build proportional portfolio
Establish Tactical Proportional Principle
Reach the return target
Active Rules:
Estimated Portfolio XIRR ≥ 8%
Tactical Proportional Principle
2. Grow (Months 6-18)
Objectives:
Increase portfolio size
Improve portfolio balance
Improve projected portfolio returns
Active Rules:
Estimated Portfolio XIRR ≥ 8%
Apply Tactical and Strategic Proportional Principles
3. Maintain (Months 18-30)
Objectives:
Maintain Tactical and Strategic Proportional Principles
Monitor portfolio performance
Active Rules:
Estimated Portfolio XIRR ≥ 8%
Apply Tactical and Strategic Proportional Principles
4. Exit (Months 30-36)
Objectives:
Stop reinvesting
Close remaining positions
Calculate final results
Rules Suspended:
Estimated Portfolio XIRR ≥ 8%
Tactical and Strategic Proportional Principles
Reason:
The portfolio is being liquidated and no new allocation decisions are made. |
Allocation Principle | Capital should be allocated according to the following steps.
Step 1 - Maintain Return Target
The investment must support the framework's minimum return requirement.
Estimated Portfolio XIRR ≥ 8%
Investments that would reduce the portfolio below the minimum required return are not eligible.
Step 2 - Maintain Proportional Principles
The investment must maintain compliance with:
Tactical Proportional Principle
Strategic Proportional Principle
Investments that would exceed any applicable exposure limit are not eligible.
Step 3 – Allocation Score
When multiple opportunities satisfy all previous principals, preference should be given to the investment with the highest Allocation Score.
The Allocation Score intentionally favors shorter capital commitment periods in order to improve portfolio flexibility.
Formula:
Allocation Score = (Interest Rate % / 100) × (Reference Period / Loan Period)
For this experiment: Reference Period = 36 Months
Purpose:
Reward higher projected returns.
Prefer shorter capital commitment periods.
Improve capital efficiency.
Provide a consistent tie-breaker when multiple investment opportunities satisfy the framework. |
Capital Deployment Principle | If no suitable investment opportunity satisfies the framework's requirements at the time capital becomes available, capital may remain unallocated until a suitable opportunity becomes available or additional investment opportunities are identified.
The framework does not require capital to be invested immediately.
This prevents investors from compromising the framework solely to avoid holding idle cash. |
Adjustment Principle | The framework relies on gradual portfolio adjustment.
Breaches do not require immediate corrective action.
Future allocations should gradually restore compliance using repayments, recoveries, interest ,bonuses and new contributions. |
Framework Override Principle | The framework guides decisions.
The framework does not replace judgment.
The objective is not blind rule-following.
Overrides are allowed and must be publicly documented. |
Metrics | The framework uses a combination of outcome, dependency, and concentration metrics to observe portfolio behaviour throughout the experiment. These metrics are designed to support disciplined portfolio construction, identify emerging weaknesses, and improve allocation decision-making over time.
Proportional Portfolio Health Score
Measures portfolio health by tracking the distribution of capital across:
Formula:
(Current Capital * 1 + Late Capital * 0.5 + Defaulted Capital * 0.25 + Recovered Capital * 0.75 + Written Off Capital * 0 ) /
(Current Capital + Late Capital + Defaulted Capital + Recovered Capital + Written Off Capital )
Interpretation:
Current Capital receives full weight.
Recovered Capital receives reduced weight because the capital has been recovered but was previously impaired.
Late Capital receives reduced weight due to increased uncertainty.
Defaulted Capital receives a significant penalty due to the risk of future loss.
Written Off Capital contributes no positive value to the score while remaining part of total capital.
Proportional Portfolio Estimated Portfolio XIRR
Measures the portfolio's projected annualized return based on the contractual cash-flow schedules of active investments.
The metric is calculated using Microsoft's Excel XIRR function applied to expected future cash flows and scheduled repayments.
The estimate assumes investments perform according to their contractual terms and does not account for future delays, defaults, recoveries, or other unforeseen events.
The metric is used as a portfolio construction measure and indicates whether the portfolio continues to satisfy the framework's minimum return requirement.
Proportional Portfolio Actual Portfolio XIRR
Measures the portfolio's realized annualized return based on actual portfolio cash flows.
The metric is calculated using Microsoft's Excel XIRR function applied to realized cash flows, including contributions, repayments, interest payments, recoveries, and withdrawals.
Actual Portfolio XIRR is reported as an observed outcome and not as a measure of success or failure.
Proportional Portfolio Default Rate
Measures the proportion of permanently lost capital within the portfolio.
Formula:
Default Rate = Permanent Defaulted Capital ÷ Total Allocated Capital
Purpose:
Observe permanent portfolio losses.
Monitor portfolio deterioration.
Compare realized losses against the framework's intended loss absorption capacity.
Proportional Portfolio Largest Platform Exposure
Measures dependency on a single platform.
Purpose:
Observe platform concentration.
Identify dominant platform exposure.
Proportional Portfolio Largest Country Exposure
Measures dependency on a single country.
Purpose:
Observe geographic concentration.
Identify dominant country exposure.
Proportional Portfolio Largest Asset Class Exposure
Measures dependency on a single asset class.
Purpose:
Observe asset class concentration.
Identify dominant asset class exposure.
Proportional Portfolio Largest Maturity Category Exposure
Measures dependency on a single duration category.
Purpose:
Observe maturity concentration.
Support the Duration Rule.
Proportional Portfolio Top 1 Loan Pressure
Measures the portfolio weight of the largest loan position.
Formula:
Largest Loan Exposure ÷ Active Capital
Purpose:
Observe single-loan concentration.
Identify the largest position within the portfolio.
Proportional Portfolio Top 3 Loan Pressure
Measures the combined portfolio weight of the three largest loan positions.
Formula:
Top 3 Loan Exposure ÷ Active Capital
Purpose:
Observe concentration within the portfolio's most significant positions.
Identify emerging portfolio weaknesses.
Support future allocation decisions.
Proportional Portfolio Top 5 Loan Pressure
Measures the combined portfolio weight of the five largest loan positions.
Formula:
Top 5 Loan Exposure ÷ Active Capital
Purpose:
Observe concentration within the portfolio's core positions.
Evaluate portfolio resilience against multiple adverse events.
Support long-term portfolio construction decisions.
where:
Active Capital = Current Capital + Late Capital + Recovery Capital + Defaulted Capital
Active Capital represents the portion of portfolio capital currently exposed to investment risk.
Cash and Written Off Capital are excluded from Active Capital because they do not contribute to current portfolio exposure.
Interpretation
The framework separates portfolio outcomes from portfolio structure.
These metrics describe how the portfolio is performing.
Outcome Metrics: Health Score; Estimated Portfolio XIRR; Actual Portfolio XIRR; Default Rate
These metrics describe how the portfolio is constructed and help identify dependency, concentration, and emerging structural weaknesses.
Dependency and Concentration Metrics: Largest Platform Exposure; Largest Country Exposure; Largest Asset Class Exposure; Largest Maturity Category Exposure; Top 1 Loan Pressure; Top 3 Loan Pressure; Top 5 Loan Pressurewhere |
