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There are many ways people try to build generational wealth. Some buy property that they inherit when they die. Others buy works of art, gold coins or other valuable collectibles. But in my opinion, the best way to build long-term wealth is to buy FTSE 100 and FTSE 250 Share.
A quick look at the long-term returns of these two London stock indices shows why. The Footsie has generated an average annual return of 8% since it began in 1984. The FTSE 250, meanwhile, has produced an even better average annual return of 11% since it began trading in the early 1990s.
Remember that past performance is no guarantee of future earnings. However, an average annual return of 9.5% for the two combined illustrates the potential returns that can be achieved by investing in UK shares.
With this in mind, here's a FTSE 100 stock that I think could deliver amazing generational returns.
banking giant
HSBC Holdings (LSE:HSBA) is one of the largest banking groups in the world. It is also the largest bank in the London Stock Exchange by market capitalization (its shares are worth a whopping £126 billion).
Footsie bank is increasingly looking towards Asia to generate long-term profits. And who can blame him? A combination of explosive population growth and rising personal incomes means demand for banking product penetration looks set to soar from current low levels.
Analysts at Statista predict that 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 earn of borrowers and what they pay to savers, will skyrocket to $7.77 trillion by the end of the period.
HSBC has considerable financial strength that it can also use to take advantage of this opportunity. Its CET1 capital ratio improved to 15.2% in March.
Risk versus reward
However, doubling down on Asia is not without risks. Emerging markets tend to exhibit greater political and economic volatility compared to developed markets.
Without a doubt, the Chinese economy is suffering from a prolonged slowdown. The constant cooling of the country's real estate market is especially worrying. Data today (June 17) showed that median home values fell in May at their fastest pace in a decade.
But, in my view, the risks this poses to HSBC's earnings outlook appear to be built into its very low share price.
Great value
Today, the banking giant trades on a forward price-to-earnings (P/E) ratio of 6.9 times. Furthermore, its price-earnings growth (PEG) ratio is 0.8.
We remind you that any reading less than 1 indicates that a stock is undervalued.
HSBC stock also looks cheap when we consider the bank's book value (total assets minus total liabilities). As the chart shows, its price-to-book (P/B) ratio is around 0.9, also below the value threshold of 1.
Finally, the dividend yield on the bank's shares amounts to 9.1%. This makes it one of the biggest potential income contributors in the FTSE 100 for this year.
HSBC shares are not without risks. But I think Footsie Bank has what it takes to generate amazing returns for long-term investors and is worth considering.
