The Commonwealth Bank of Australia (ASX: CBA) share price has performed exceptionally well over time, but I'd consider Macquarie Group Ltd (ASX: MQG) and Class Ltd (ASX: CL1) first.
What's wrong with CBA?
Saying CBA shares are not a buy is like calling your friend's child ugly. It's tough to hear, but it's true.
At the current CBA share price around $85, the bank's shares trade at a premium valuation to its peers and the broader market, or S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).
While it is a great bank, and I would like to own it in my portfolio, it is not a great long-term investment today, in my opinion.
Given where we are in the property, interest rate and economic cycles, I think CBA shares are priced to perfection.
2 ASX shares I'd buy first
If you want exposure to a quality bank share, I suggest running the ruler over Macquarie Group, especially if you have an existing exposure to the banking sector.
Like CBA, Macquarie is a cyclical business. Meaning, its profits, dividends and share price can be expected to rise and fall dramatically along with the economy and financial system.
Macquarie is Australia's largest investment bank, specialising in everything outside basic banking products like mortgages, deposits and business banking. Macquarie is a major fund manager, asset finance provider (cars, aeroplanes, etc.) and capital markets specialist.
Importantly, it offers global exposure, which is more than can be said of CBA and its peers. It also pays a handy partially franked dividend.
Another ASX share I'd consider is one that is a little outside the box. Class is a small company developing software used by accountants and financial advisers to administer client investment portfolios and self-managed superannuation funds (SMSFs).
The company has experienced significant growth since listing on the ASX and just recently started paying a dividend. With SMSFs growing in popularity and a mounting regulatory/compliance burden on finance professionals managing portfolios, software like that provided by Class is only becoming more valuable.
Foolish Takeaway
In my opinion, a diversified portfolio of around 20 ASX shares is perfect for long-term investors. Within that, you should not be overexposed to any sector (e.g., banking) or geography (e.g. Australia).
For example, if you have 15% of your entire share portfolio (ASX plus international shares) invested in CBA, 10% in Westpac Banking Corp (ASX: WBC) and 5% in National Australia Bank Ltd. (ASX: NAB), that's far too much.
At today's prices, for the long-term, I'd buy Macquarie and Class shares before CBA.
Until CBA's valuation becomes more compelling, it is a hold in my book.
