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

Let's see what steps you could take to build a winning portfolio.

Deciding which ASX shares deserve the title as best shares to buy is subjective, but certain traits can set businesses apart.

For example, companies with a sustainable competitive advantage and trading at fair valuations based on their financial prospects are often prime candidates.

By building a diversified portfolio of these high-quality shares, investors can position themselves for attractive long-term returns. And even with the recent rally in the stock market, there are still plenty of opportunities to snap up good valued shares, making now a great time to start taking advantage of top ASX stocks.

Happy young couple saving money in piggy bank.

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What are top ASX shares?

As mentioned above, top ASX shares are often those companies that possess a distinct competitive edge over their peers. For instance, they may offer a unique product or service that allows them to command higher margins. Alternatively, they could have a cost advantage or strong brand loyalty that gives them an edge in delivering consistent long-term performance.

Companies such as CSL Ltd (ASX: CSL), Goodman Group (ASX: GMG), and ResMed Inc. (ASX: RMD) immediately spring to mind.

Financial health is another important factor. Companies that have robust balance sheets and strong cash flow are particularly appealing in an uncertain economic environment. These types of businesses are more likely to weather challenges and emerge stronger, making them safer bets in volatile markets.

Importantly, even the best companies can be overlooked by the market at times, leading to undervalued stock prices. This might happen due to temporary setbacks in performance or negative sentiment toward their sector. These situations present opportunities for investors to acquire great businesses at discounted prices. CSL could be an example of this right now after post-COVID margin pressures weighed on its growth.

Building a balanced portfolio

Once you've identified potential top ASX shares, constructing a well-rounded portfolio is important. While it's tempting to concentrate investments in a handful of high-conviction ideas, doing so can expose you to significant company-specific risks.

A diversified portfolio spreads risk across multiple holdings, enhancing the likelihood of consistent returns.

Holding some cash on the sidelines can also be prudent. Having liquidity allows you to capture new opportunities during market pullbacks. And while this approach may slightly reduce short-term returns, it ensures you're ready to take advantage of the market's natural cycles.

Playing the long game

Even top ASX shares experience periods of underperformance. Patience and a long-term perspective are vital for any equity portfolio. History has shown that the stock market consistently delivers strong returns over time compared to other asset classes, making it an ideal choice for wealth building.

Overall, by focusing on quality, diversification, and a disciplined investment approach, you can identify top ASX shares and harness their potential to achieve your financial goals.

Motley Fool contributor James Mickleboro has positions in CSL and ResMed. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended CSL, Goodman Group, and ResMed. The Motley Fool Australia has positions in and has recommended ResMed. The Motley Fool Australia has recommended CSL and Goodman Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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