One day, CBA shares will go down. Here's how to keep it from hurting your portfolio

Don't bank on CBA going up forever.

A woman wearing yellow smiles and drinks coffee while on laptop.

Image source: Getty Images

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

The Commonwealth Bank of Australia (ASX: CBA) share price growth has delivered good returns for shareholders in the past 12 months. CBA shares have risen more than 26% in the last year, plus there have been the dividend payments.

It's been a great period of time for the ASX bank share, but there's a big difference between the returns of the shares compared to the performance of the underlying financials of the bank.

It's rare for a bank the size of CBA to deliver capital growth of more than 20% in one year. Unless earnings grow at the same speed as the share price or faster, the price/earnings (P/E) ratio will increase, and the company will appear more expensive.

In my view, today's CBA share price valuation will either need to be justified by higher earnings or else there could be a pullback. Market volatility is completely normal of course, as there are always different buyers and sellers in the market. But what can we do to protect our portfolios from specific stock risk?

Diversification

I believe it's very easy to create diversification within our portfolios.

Diversification can help lower the risk of being too exposed to a particular business or sector.

If CBA was someone's entire portfolio and it dropped 20%, their portfolio would be worth 20% less.

If CBA was only 10% of a person's portfolio, a 20% decline in the CBA share price would only mean a 2% decline in the portfolio value.

Of course, that doesn't mean spreading your capital across Westpac Banking Corp (ASX: WBC), ANZ Group Holdings Ltd (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) because those other banks are in the same industry.

If I were buying individual ASX blue-chip shares, I'd look at names like Telstra Group Ltd (ASX: TLS), Rio Tinto Ltd (ASX: RIO), Wesfarmers Ltd (ASX: WES), Coles Group Ltd (ASX: COL) and Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) because they all offer different industry exposure to CBA shares.

Go global

An even better strategy to achieve diversification and avoid the risks of being overexposed to CBA shares is to invest in exchange-traded funds (ETFs).

ETFs allow us to buy a basket of shares in a single transaction. Each ETF has a different portfolio, so I think it's worthwhile being selective about which fund to go with.

If I already owned a lot of CBA shares, I wouldn't jump to buy Vanguard Australian Shares Index ETF (ASX: VAS) because it has a large allocation to ASX bank shares. I believe there are better options for diversification.

I'd look at globally focused ETFs, which, thanks to the quality of the underlying businesses, can provide both diversification and, hopefully, good returns.

Some of my favourites include VanEck MSCI International Quality ETF (ASX: QUAL), Betashares Global Quality Leaders ETF (ASX: QLTY), BetaShares Global Sustainability Leaders ETF (ASX: ETHI), and Vanguard MSCI Index International Shares ETF (ASX: VGS).

CBA is a great business, but there are plenty of others worth owning too, in my opinion. Choosing compelling global ETFs means we can spread our money across hundreds of businesses.

Motley Fool contributor Tristan Harrison has positions in Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Washington H. Soul Pattinson and Company Limited and Wesfarmers. The Motley Fool Australia has positions in and has recommended Coles Group, Telstra Group, Washington H. Soul Pattinson and Company Limited, and Wesfarmers. The Motley Fool Australia has recommended Vanguard Msci Index International Shares ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Bank Shares

Shocked office worker staring at computer screen with colleagues working in the background.
Bank Shares

The ASX bank share beating CBA in 2025

Many investors might not realise this smaller bank stock is leading the pack this year. 

Read more »

man thinking about whether to invest in bitcoin
Bank Shares

Here's what needs to happen for the CBA share price to try and reach $200

What could drive the CBA share price higher?

Read more »

A young woman sits at her desk in deep contemplation with her hand to her chin while seriously considering information she is reading on her laptop.
Bank Shares

Why now could be an opportune time to sell CBA shares

A leading expert offers his verdict on the outlook for CBA shares.

Read more »

A man holding a cup of coffee puts his thumb up and smiles while at laptop.
Bank Shares

The Westpac share price is a buy – UBS

The broker is optimistic on Westpac shares.

Read more »

Bank building with the word bank on it.
Bank Shares

The biggest buyers and sellers of ASX 200 bank stocks revealed

Macquarie breaks down who’s been buying and who’s been selling the ASX 200 bank stocks.

Read more »

A young woman sits with her hand to her chin staring off to the side thinking about her investments.
Resources Shares

Should I switch my ASX 200 banking stocks for ASX 200 miners before earnings season?

The ASX 200 Index is dominated by Australia's bank and materials/mining sectors, which together account for around half of the…

Read more »

A man sits in contemplation on his sofa looking at his phone as though he has just heard some serious or interesting news.
Bank Shares

Here's when Westpac says the RBA will now cut interest rates

The RBA surprised everyone by keeping rates on hold last week. So, when will the next cut happen?

Read more »

Hand holding Australian dollar (AUD) bills, symbolising ex dividend day. Passive income.
Bank Shares

This is the ASX bank stock with the largest dividend yield right now

Looking to ASX bank stocks for dividend income right now?

Read more »