The FTSE 100 is called a passive revenue paradise as a result of beneficiant dividends paid out by mature blue-chip firms. These embody Rio Tinto, BP, Lloyds, and Imperial Manufacturers.

In the meantime, the annual Shares and Shares ISA contribution restrict is £20,000. This implies I can make investments that a lot and never have to fret about tax. Effectively, as issues stand, at the least (I’m writing earlier than the funds).

Placing these two collectively then, how a lot might I obtain from a £20k funding in an exchange-traded fund (ETF) that tracks the FTSE 100? Let’s discover out.

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The quantity

In accordance with the London Inventory Change, the FTSE 100’s dividend yield is 3.64%. So I’d count on to get round £728 a 12 months in dividends from such an funding.

No payout is assured, in fact. And the yield can fluctuate resulting from share price actions, dividend cuts, will increase, and particular dividends. However that’s what yield I’d count on.

Is that engaging? It won’t sound it when financial savings accounts are nonetheless paying very respectable charges. And I might lose a few of my invested capital if the Footsie tanked.

Trying forward although, rates of interest are seemingly heading decrease, which signifies that yield (and shares usually) ought to begin to look a extra enticing prospect.

What might it result in?

Both approach, I might reinvest my dividends and nonetheless count on compounding to work its magic over time.

For instance, let’s assume my FTSE 100 ETF returned 8% a 12 months by way of a mix of dividends and share price will increase. And that I reinvested these dividends (or invested in an accumulation ETF that robotically did it for me). Right here’s how that may play out over time.

On this situation, I’d finish up with over £200k after 30 years — with out investing one other penny!

A a lot increased yield

Whereas I can see the attraction of passive ETF investing, my very own strategy is to choose particular person shares. And one which I’ve purchased on a number of events this 12 months is HSBC (LSE: HSBA).

The share price is at present at a six-year excessive after the financial institution reported better-than-expected Q3 earnings. Pre-tax revenue jumped 10% 12 months on 12 months to $8.5bn, breezing previous analysts’ expectations for $7.6bn. That was on quarterly income of $17bn, which was 5% increased and in addition greater than anticipated.

Moreover, the financial institution introduced it was shopping for again one other $3bn price of shares, including to the $3bn buyback it simply carried out. As for the yield, it stands at 6.7%, which is considerably above the FTSE 100 common.

Thoughts you, HSBC doesn’t come with out threat. The financial institution is to formally break up its geographic footprint between East and West, and we don’t know the way this main revamp will play out. In the meantime, restructuring and cost-cutting won’t be sufficient to maintain earnings as rates of interest fall.

Nevertheless, new CEO Georges Elhedery reckons grouping its Center East and China companies collectively will assist it seize large progress alternatives. He mentioned: “We see the corridor between the Middle East and Asia as one of the fast growing business corridors — be it trade corridors or investment corridors — on the planet.”

To my thoughts, HSBC affords an excellent mix of high-yield dividends and long-term progress potential. With the inventory nonetheless low cost on a price-to-earnings ratio of eight, I choose it over a Footsie tracker.