What rebalancing is, calendar and threshold methods, how to rebalance with new money and dividends, and the costs and tax points for UZSE investors.
In short
A portfolio drifts from the mix you chose because some holdings grow faster than others.
Rebalancing brings it back to the target weights, keeping your risk where you set it.
Check on fixed dates, act when a weight leaves its band, or combine the two.
Rebalance first with new savings, dividends, coupons and maturing money, and sell only for what is left.
On UZSE, bands of several points avoid paying commissions and spreads for tiny differences.
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What asset allocation is, how goals, time horizon and risk capacity shape your mix of cash, fixed income and shares, and what it means on the Uzbek market.
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You set up a portfolio with a mix you are comfortable with, for example part in deposits, part in bonds and part in shares. A year later the mix has changed on its own, because some holdings rose and others did not. Rebalancing is the habit of bringing the portfolio back to the mix you chose. This guide explains why it matters, the two common ways to do it, how to do it cheaply, and what to watch on the Uzbek market.
Why a portfolio drifts
Each part of a portfolio earns a different return. The part that grows fastest takes up a larger and larger share of the whole. If shares do well for several years, a portfolio that started as a moderate mix quietly becomes a share-heavy one, with more risk than you signed up for. If shares fall, the opposite happens and the portfolio becomes more cautious than planned, just when shares are cheaper.
An example with illustrative round numbers. You start with 10,000,000 soʻm: 5,000,000 in shares and 5,000,000 in bonds and deposits, a 50/50 target. Over a year the shares rise 40% and the fixed-income part earns 10%.
Shares: 5,000,000 × 1.4 = 7,000,000 soʻm.
Fixed income: 5,000,000 × 1.1 = 5,500,000 soʻm.
Total: 12,500,000 soʻm, of which shares are now 56%.
Nothing is wrong, but the portfolio is no longer the one you planned. If shares then fell by a third, the loss would hit a bigger slice of your money than you intended.
What rebalancing does
Rebalancing means moving the portfolio back to its target weights. In the example, the target for each half is 50% of 12,500,000, which is 6,250,000 soʻm. You would move 750,000 soʻm from shares to fixed income.
Rebalancing does two things:
It keeps risk where you set it. Your portfolio's ups and downs stay close to what you decided you could live with.
It imposes a discipline. You trim what has risen and add to what has lagged. That is uncomfortable, because it goes against the mood of the market, and that is exactly why a written rule helps.
What it does not do is guarantee a higher return. If shares keep rising for many years, a portfolio that is never rebalanced will end up ahead, with more risk along the way. Rebalancing is a risk tool first.
Two common methods
Calendar rebalancing
You check the portfolio on fixed dates, for example once a year on the same day, and restore the target whatever the market has done. It is simple and easy to stick to. The drawback is that a large move just after your review date waits a whole year.
Threshold rebalancing
You set a band around each target, for example plus or minus 5 percentage points, and act only when a weight leaves its band. With a 50% target for shares, you would act only below 45% or above 55%. In the example above, 56% would trigger a rebalance. This reacts to big moves and ignores small ones, but you need to look at the portfolio regularly to notice.
Many investors combine the two: they look on fixed dates and act only if a weight is outside its band.
Two ways to rebalance
Calendar rebalancing
Check the portfolio on fixed dates, such as once a year
Restore the target whatever the market has done
Simple and easy to stick to
A large move just after the review date waits a whole year
Threshold rebalancing
Set a band around each target
Act only when a weight leaves its band
Reacts to big moves and ignores small ones
You need to look at the portfolio regularly
Rebalance with cash flows first
Selling is not the only way to rebalance. Often it is not the best way either.
New savings. If you add money every month, direct it to the part that is below target. In the example, the next 750,000 soʻm of savings could go entirely to fixed income.
Dividends and coupons. Payments from your holdings can go to the underweight part instead of back into the same holding.
Maturing bonds and deposits. When a bond is repaid or a deposit ends, choose where the money goes according to your targets.
Using cash flows avoids selling costs and keeps you invested. Selling becomes necessary only when the drift is large compared with the money coming in.
Costs, tax and liquidity on UZSE
Commissions and spreads. Every trade through a broker carries a commission, and on the Tashkent Stock Exchange (UZSE) the gap between the best buy and sell prices can be wide for less traded shares. A rebalance that moves a small amount can cost more than it is worth. Bands of several percentage points help avoid trading for tiny differences. The order book and spread guide explains the hidden cost of the spread.
Tax on selling. Under Article 378, item 7 of the Tax Code, income an individual gets from selling issue-grade securities on a stock exchange is not subject to personal income tax, as of September 2026. Securities sold off the exchange are treated differently. Dividends on shares and corporate bond coupons are exempt until 31 December 2028 under Article 483; for money due after that, plan with the 5% rate for residents unless the relief is extended. See tax on dividends and bond coupons.
Liquidity. Some UZSE shares may not trade for days. If you need to trim such a holding, it may take time or a lower price. Plan rebalancing trades with limit orders and patience rather than forcing them in one session.
Deposits with terms. A term deposit closed early may lose part of its interest. Treat such deposits as fixed until maturity and rebalance around them.
Do
Use bands of several percentage points so you do not trade for tiny differences.
Plan rebalancing trades with limit orders and patience.
Treat term deposits as fixed until maturity and rebalance around them.
Count dividends and coupons after tax when you plan.
Don't
Force a trade in a thinly traded share in one session.
Rebalance a small amount when the trade costs more than it is worth.
A simple rebalancing routine
Write down your targets and bands. For example 50% shares with a band of 5 points, and 50% fixed income and cash.
Pick a review date. Once or twice a year is enough for most people.
Measure the current weights. Use current market values, not what you paid.
Redirect cash flows first. Send new savings, dividends and maturing money to the underweight part.
Trade only for what is left. If a weight is still outside its band, sell the overweight part and buy the underweight part, with limit orders.
Record what you did and why. Next year you will see whether your rule held up.
A free Finmind account gives you the portfolio, which shows your holdings at their latest prices, so you can read the current weights without a spreadsheet. For the thinking behind targets, read diversification and risk.
Frequently asked questions
For most private investors once or twice a year is enough, or whenever a weight moves outside a band you set in advance, such as 5 percentage points. Rebalancing much more often mostly adds trading costs without reducing risk in a meaningful way.
Not reliably. Its main purpose is to keep the portfolio's risk close to the level you chose. In some periods trimming winners and adding to laggards helps returns, and in long rising markets it can reduce them. Think of it as risk control, not as a way to earn more than the market.
Often yes. Directing new savings, dividends, coupons and money from maturing bonds or deposits to the part of the portfolio that is below target will close small gaps. Selling is needed only when the drift is large compared with the money you add.
Under Article 378, item 7 of the Tax Code, an individual's income from selling issue-grade securities on a stock exchange is not taxed, as of September 2026. Sales off the exchange are treated differently, and commissions still apply, so check the current rules and your broker's tariff before trading.
This article is for education only and is not investment advice. Investing in securities involves risk, including the loss of money you invest.
Key terms in this post
Rebalancing
Bringing a portfolio back to its target mix by selling some of what grew and buying what fell behind.
Spread
A gap between two prices or rates. On an exchange it is the gap between the highest price a buyer offers (bid) and the lowest a seller asks (ask).
Coupon
The interest a bond pays its holder, usually a fixed percentage of its face value, paid on set dates.
Limit order
An order to buy or sell only at the price you set or better. It may wait, or never be filled.
Maturity
The date a bond ends and the issuer pays back its face value.
