What do I mean by generational wealth? I’m talking about building up enough cash to keep ourselves happy in retirement, and still have some to hand down to our ill-deserving offspring when we pop our clogs. But why FTSE 100 stocks?
Well, the top London index has delivered average annual returns of 8% since it was launched in 1984. Stick that in your Cash ISA!
Compounded up over 30 years, that’s enough to turn a monthly £500 investment into more than a quarter of a million pounds.
Long-term winner
I bought shares in insurer Aviva (LSE: AV.) myself. The Aviva share price has had a few ups and downs, but that can happen with any company. It’s why I only buy shares as part of a diversified Stocks and Shares ISA.
I’d expect the dividend to be volatile too, as the insurance business tends to go through cycles. It can have a few years of very good profits and cash flow, then hit a downturn at the drop of a hat.
To me that really makes the sector even more of a long-term-only one. I’d say an absolute minimum of 10 years, but ideally for life.
But right now, we’re looking at a forward yield of 6.9%.
And forecasts for Aviva show the dividend growing strongly in the next couple of years.
Finance stock cash
I like other stocks in the insurance sector too, including Legal & General with a forecast 8.9% dividend yield, and Phoenix Group Holdings at 9.8%.
I also can’t leave the financial sector without a peek at the banks. Thanks to recent share price gains, the Lloyds Banking Group dividend is down to 4.7%.
But at HSBC Holdings, we still see a 7.3% yield. There’s global and Chinese risk with HSBC, but I still like it, providing the diversification is there too.
I also can’t ignore British American Tobacco with its 9.2% yield. I won’t buy it myself, for ethical reasons, and the whole business faces long-term risk. But I can’t fault anyone who wants to snag a bit of that cash for their grandchildren.
Maybe the best?
I’ve got this far without mentioning National Grid (LSE: NG.), which might just be the best FTSE 100 income stock ever. What am I thinking?
Even the best can bring unexpected risk, though. And a look at the chart shows how the stock slumped at the end of May when the firm announced its big rights issue…
Still, the forecast dividend yield is up at 6%. And National Grid is in the fortunate position of having an effective monopoly on its business.
That business is regulated, mind. And that means the firm doesn’t have full control over what it does and how it uses its shareholders’ money.
But I still think I really should buy some, especially after this drop. As it happens, one of the next generation in my family already has some.
A start
Anyway, that’s just a start, with a few ideas of FTSE 100 stocks that I might buy with my grandchildren in mind. Do your own research, Fools. And teach your children well.
This post was originally published on Motley Fool
