A FTSE 100 share that could create generational wealth

Investing in FTSE shares can help individuals pass down a significant chunk of cash to their children and grandchildren, data shows.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Black father holding daughter in a field of cows

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

There are lots of ways that people try to build generational wealth. Some buy property that they pass down the line when they die. Others buy fine art, gold coins or other high-worth collectibles. But in my opinion, the best way to make long-term wealth is to buy FTSE 100 and FTSE 250 shares.

A quick glance at the long-term returns of these two London share indices shows why. The Footsie has delivered an 8% average annual return since it began in 1984. The FTSE 250, meanwhile, has produced an even better 11% average return since it started up in the early 1990s.

Remember that past performance is no guarantee of future profits. However, an average 9.5% yearly return for the two combined illustrates the potential returns that can be achieved by investing in UK shares.

With this in mind, here is a FTSE 100 share I think help could generate stunning generational returns.

Banking giant

HSBC's share price.
Created with TradingView

HSBC Holdings (LSE:HSBA) is one of the world’s biggest banking groups. It’s also the largest bank on the London Stock Exchange by market cap (its shares are worth a whopping £126bn).

The Footsie bank is looking increasingly to Asia to drive long-term profits. And who can blame it? A combination of explosive population growth and increasing personal incomes mean banking product penetration demand looks set to soar from current low levels.

Analysts at Statista predict banks’ net interest income will expand at a compound annual growth rate of 5.8% between now and 2029. This metric — which measures the difference between the interest banks get from borrowers and what they pay savers — is tipped to soar to $7.77trn by the end of the period.

HSBC has considerable financial strength it can use to capitalise on this opportunity, too. Its CET1 capital ratio improved to 15.2% as of March.

Risk vs reward

Doubling-down on Asia doesn’t come without risk, however. Emerging markets tend to exhibit greater political and economic volatility compared to developed markets.

China’s economy is certainly suffering a prolonged slowdown. A steady cooling in the country’s property market is especially worrying. Data today (17 June) showed average home values plunging at their fastest rate for a decade in May.

But the risks this poses to HSBC’s profits forecasts seem baked into its rock-bottom share price, in my opinion.

Great value

Today the banking giant trades on a forward price-to-earnings (P/E) ratio of 6.9 times. Furthermore, its price-to-earnings growth (PEG) ratio comes in at 0.8.

A reminder that any reading below 1 indicates that a share is undervalued.

HSBC's price-to-book (P/B) ratio.
Created with TradingView

HSBC shares also look cheap when we consider the bank’s book value (total assets minus total liabilities). As the graph shows, its price-to-book (P/B) ratio stands at around 0.9, also below the value threshold of 1.

Finally, the dividend yield on the bank’s shares comes in at 9.1%. This makes it one of the biggest potential income payers on the FTSE 100 for this year.

HSBC shares aren’t without risk. But I believe that the Footsie bank has what it takes to deliver stunning investor returns over the long haul and is worth considering.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

A rear view of a female in a bright yellow coat walking along the historic street known as The Shambles in York, UK which is a popular tourist destination in this Yorkshire city.
Investing Articles

£10K invested in Greggs shares at the start of 2025 is now worth…

Greggs shares have tumbled badly so far this year. There may be good reasons for that, but as a long-term…

Read more »

Businessman with tablet, waiting at the train station platform
Investing Articles

Here’s the growth forecast for BAE Systems shares through to 2027!

I think BAE Systems could be one of the hottest growth shares to consider right now. Here's why I'm a…

Read more »

Midnight is celebrated along the River Thames in London with a spectacular and colourful firework display.
Investing Articles

2 top ETFs for investors seeking high-yield dividend shares to consider!

Looking for dividend shares to buy? Here are two top ETFs that may be safer, and no less lucrative, options…

Read more »

A mature adult sitting by a fireplace in a living room at home. She is wearing a yellow cardigan and spectacles.
Investing Articles

Yielding 9.4%, Legal & General shares are a passive income-generating machine

Legal & General’s shares may have struggled for momentum, but this Fool still rates them in the big league for…

Read more »

A row of satellite radars at night
Investing Articles

I just invested £2k in IAG shares. These forecasts suggest I’ve backed a winner!

When IAG shares dipped last month, Harvey Jones couldn't believe his luck. Now he's buckled up for what he thinks…

Read more »

Tariffs and Global Economic Supply Chains
Investing Articles

£5,000 invested in Scottish Mortgage shares just 1 month ago is now worth…

Ben McPoland takes a look at a handful of growth shares in the Scottish Mortgage portfolio to see how they…

Read more »

UK supporters with flag
Investing Articles

2 UK stocks that could be set for a roaring recovery

This investor highlights a pair of UK stocks from the FTSE 100 and FTSE 250 indexes that may be set…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
US Stock

3 of the best pieces of advice from Warren Buffett’s final annual meeting

Jon Smith reviews some of the highlights from Warren Buffett's final conference and details investing lessons that everyone can learn…

Read more »