How I'd build a portfolio by investing in top shares now

Buying a diverse range of top shares today could be a sound means of generating impressive returns over the long run, in my opinion.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Determining which companies can be classed as 'top shares' is very subjective. However, they could include businesses that have a competitive advantage, and that trade at fair prices given their financial outlooks.

Through buying a diverse range of them, it is possible to build a portfolio that can deliver attractive returns over the long run. With many opportunities to buy undervalued shares still available despite the recent stock market rally, now may be the right time to start the process of capitalising on today's top stocks.

Defining which companies are top shares

Businesses with competitive advantages over their peers may be more likely to be classed as top shares. For example, they may have a unique product that means they can generate higher margins than their rivals. Or, they could have a lower cost base and stronger brand loyalty that lifts their financial performance over the long run.

Similarly, the most appealing shares may be those companies with solid balance sheets and strong cash flow. This point may be especially relevant at the present time, since the outlook for the economy continues to be very uncertain. Financially-sound businesses may be better able to overcome threats to economic growth caused by the coronavirus pandemic.

Meanwhile, top shares may be those companies that have all of the above attributes, but yet trade at low prices. Their low valuations may, for example, be caused by weaker recent performance that can be reversed over the long run. Or, investor sentiment towards their sector could be downbeat. This may present an opportunity to buy high-quality companies trading at low prices.

Building a portfolio of attractive stocks

Once top shares have been identified, building a portfolio of them can be a challenging task. After all, it is tempting to simply focus on a small number of the best ideas that are available at a given point in time. However, this may lead to high company-specific risk that means an investor is very reliant on a small number of holdings for their returns. Through buying a wider range of businesses, it may be possible to reduce overall risks.

Furthermore, holding some cash in case of a stock market crash can be a shrewd move. This does not mean that an investor relies on savings accounts for their returns. Rather, they have a limited amount of cash available so they can add more stocks to their portfolio should appealing opportunities come along in future. This may mean lower returns in the short run, but can provide greater opportunity to capitalise on the stock market cycle when seeking to buy top stocks.

Taking a long-term view

As ever, even top shares can experience periods of disappointment. Therefore, it is important to take a long-term view of any portfolio that contains equities. The track record of the global stock market shows that it can deliver attractive returns relative to other mainstream assets.

Should you invest $1,000 in Coles Group Limited right now?

Before you buy Coles Group Limited shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Coles Group Limited wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 30 April 2025

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on How to invest

man helping couple use a tablet
How to invest

Risk management: why rebalancing your portfolio is the ultimate tool

Let's see how rebalancing a portfolio can help protect it.

Read more »

A young couple hug each other and smile at the camera standing in front of their brand new luxury car
How to invest

How to turn $100 a week into $500,000 with ASX shares

You don't need to invest large sums to become rich in the share market.

Read more »

Warren Buffett
How to invest

Warren Buffett's favourite holding period is forever, but there's a catch

Buffett is clear about what he wants.

Read more »

$100 Australian notes on top of each other.
How to invest

How to turn a $50,000 ASX share portfolio into a passive income machine

Here's how you could make the share market your own personal ATM.

Read more »

Different Australian dollar notes in the palm of two hands, symbolising dividends.
How to invest

How cash can make or break an investor's track record

Buffett has mastered the art of holding cash.

Read more »

Suncorp share price Businessman cheering and smiling on smartphone
How to invest

Why buy and hold investing with ASX shares could be your smartest move yet

Wealth building takes time but sure could be worth it.

Read more »

Happy young couple saving money in piggy bank.
How to invest

How to earn $12,000 of passive income from ASX shares each year

Want your own personal ATM? Here's how you can get paid by the share market.

Read more »

Happy young man and woman throwing dividend cash into air in front of orange background.
How to invest

The 2025 stock market selloff could be a once-in-a-decade opportunity to build wealth

Now could be a great time to grow your wealth in the share market.

Read more »