Are you banking on an inheritance to fund your retirement? You’re not the only one. An estimated 5m under-55s are playing “inheritance roulette”, putting off saving for retirement because they are banking on a legacy windfall.
Inherit the wind
The research comes from Canada Life which warns that more half a million will live beyond 90, so their children may face a long wait. Worse, the family estate may get chewed up in care costs if parents suffer long-term illnesses.
There are other reasons why you may not inherit as much as you think. House prices could fall. Stock markets may crash at the wrong time. Jeremy Corbyn’s Labour Party will ramp up inheritance tax if it takes power. Who wants to hang around waiting for their parents to die when they should be taking action themselves?
A great way of saving for the future is to set up a tax-free Stocks and Shares ISA then building a balanced portfolio of company equities, perhaps combined with low-cost exchange traded fund (ETF) trackers or investment trusts.
The following two FTSE 100 financial companies may be a good place to start. Legal & General Group (LSE: LGEN) and Prudential (LSE: PRU) both have a long-term track record of delivering growth and income, yet are trading at surprisingly low valuations.
I’m particularly surprised given recent strong growth, with both stocks up almost 20% year-to-date.
L&G Investment Management is one of Europe’s largest asset managers with more than £1trn assets under management, which rose 3% last year despite market volatility.
The £16.5bn group is expanding in the US, Middle East and Asia, and here the growth opportunities are greater with assets up 13% last year. In the UK, it also offers retirement products such as annuities, workplace pensions, equity release, and life insurance, although it has just offloaded its general insurance business to Allianz for £242m.
Selling non-core businesses has generated £1.5bn which it now hopes to reinvest back into more productive core assets.
The Legal & General share price could climb even higher if the US cuts interest rates, as expected. Today, it trades at a bargain valuation of 8.4 times forecast earnings, which gives it a margin of safety in case of further market volatility, while it currently yields a mighty 6% a year.
With a market-cap of almost £44bn, Prudential is a big insurance beast. It has grown by building its presence in Asia, where it hopes to take advantage of fast-growing markets and the emerging middle-class, who need pension and protection products because of limited state provision.
Last year, operating profits in Asia rose 14% to £2.2bn, against 6% across the group, which took total operating profits to £4.83bn. Prudential is currently demerging its investment and savings arm M&GPrudential, in a bid to enhance the strategic focus of both.
The Prudential share price also trades at a lowly valuation of just 10.2 times earnings, which reflects investor nervousness. The yield is lower than L&G’s, at around 3%, but management is progressive, increasing the dividend by 5% last year.
Buying and holding stocks like these two for life looks like a far sounder financial move than banking on an inheritance.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Prudential. 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.