Many SSIA holders with equity-based accounts are experiencing a bumpy ride in the quest for good returns, writes Laura Slattery.

During the first few days of May 2002, holders of Special Savings Incentive Accounts (SSIAs) would have been feeling pretty pleased with themselves.

Many had, at the last minute, abandoned their workplaces, sprinted into the nearest bank or building society and stood side-by-side with a common goal - to reach the counter window and get their hands on free Government money before the offer cut-off point of April 30th. This time they were not going to miss out.

Nine months later and many of the 1.2 million SSIA holders have suffered a bumpy ride. In particular, people who opted for equity-based SSIAs will be feeling a little nervous about their performance.

Some may have been first-time investors, swept up by SSIA hype, peer pressure and the suggestion that a third bear market year in a row was unthinkable. Now many are finding that, as far as their relationship with the stock market is concerned, they may not be able to get in and out as smoothly as they had hoped.

Institutions are reminding equity-based SSIA investors they should be prepared to keep their money tied up in equity funds for longer than the original five-year term if they want their contributions to recover from these early traumas and make satisfactory gains.

"A lot of people, maybe because of aggressive sales people or greed, chose the equity-based SSIA over an interest-related account and they will have suffered; how much depends on whether the money went into a managed fund or a pure equity fund," says Mr John McGovern of Becketts Employee Benefits Consultants.

Exact losses incurred so far will vary according to the institution managing the account, the type of fund and the time the SSIA was opened. Some SSIA providers say that the €1 for every €4 added by the Government at the time of investing has effectively been written off by poor market conditions, although losses on some funds have not been quite so dramatic.

Investing "on the drip" through a monthly savings plan for five years is the equivalent of investing the same amount of money as a lump sum for two-and-a-half years, according to Becketts. While equities historically outperform other types of investment over the long-term, a real term of two-and-a-half years is not long enough, says Mr McGovern.

However, investing by monthly instalments has some advantages in a prolonged bear market. While they may be making losses on earlier contributions, SSIA holders can buy new units each month at very low prices. If you're going to suffer a bad run, it's far better to do so now when only part of the total sum has been invested rather than later, when more is at stake and the maturity date looms closer.

"Of course, the risk is the market will never bounce back," says Mr Dermot Corry, director of consultants Life Strategies. "But there would seem to be some scope for upside."

People who took out SSIAs with the idea that they would need that money, plus the Government bonus and any gains, on a fixed date exactly five years after they signed the contract are involved in a much riskier business and were perhaps mis-sold, notes Mr Corry.

"If you wanted to take the money on the fifth anniversary and buy a car or extend the house, it was typically said that you should be focusing on a deposit SSIA. If your plan was not to take the money for six, seven or 10 years and it was a much more open-ended commitment, you were more likely to be directed toward an equity SSIA," he says. "If you can afford to wait, look at 2007 and beyond, then there is more of a chance to recover."

One suggestion being touted by Mr John Feely, president of the Irish Association of Pension Funds, is that people could take their SSIA money after the five years and reinvest it in a Personal Retirement Savings Account, the new portable, low-charge personal pension arriving on the Irish market this year.

But, for now, the main message being sent to those beginning to regret ever getting involved with the market is to stick with it, at least for the five years. Most are doing just that.

"My sense is that people are aware that the markets are falling, but there isn't a sense of panic," says Mr Dara Fitzgerald, marketing manager for Hibernian Investment Managers. "We haven't seen an awful lot of annual statements yet," he adds. "That might create a little more activity and a bit more discomfort."

When these annual statements arrive in the letterboxes of those who came late to SSIAs, many investors could find themselves at a crossroads. The statements will typically show the total value of contributions and the current total value of those contributions, which is likely to be much less. Is now the time to get out and stay out of the market?

The answer is "no", according to Mr Fitzgerald. "Whatever you do, don't stop contributing. This is a once-off opportunity," he says. Remember, unlike other equity investors, SSIA holders have the cushion of a 25 per cent Government bonus to soften the blow. "People are free to take a break from contributions, but for that interim period you're obviously forgoing the contribution from the Revenue side, and that's one of the main attractions."

The annual statements will also show a surrender value, he says: the amount people would receive if they got out completely and paid tax at a rate of 23 per cent on the original contributions and the investment gains rather than just the gains. This figure will make the current value of the SSIA fund seem attractive by comparison.

However, there are still options available to equity-based SSIA holders who feel their anxiety is justified and are too impatient to wait for the increasingly elusive market recovery.

"To switch to a cash fund or a deposit SSIA now would only be realising the loss, but people could investigate the possibility of putting future contributions into cash or deposit funds," says Mr McGovern. "My own view is that when markets do turn, there may not be a rapid turnaround, but a slow and gradual rise."

People could look to lower risk funds still within the scope of an equity-based SSIA, Mr McGovern explains. One option he wouldn't advocate is investing in fixed-interest or gilt funds. These have done quite well over the past couple of years, he notes, but he believes they are a "bubble about to burst".

People who tend towards the lowest-risk funds should be in a deposit SSIA where there are much lower charges, according to Mr Brian Woods, finance director of Ark Life, AIB's life assurance subsidiary.

Ark Life's Secure Fund is really a "panic button" for people who are really fed up by continuing market problems, he says.

Most SSIA equity providers don't allow transfers from other institutions, but they will allow people to switch between their own funds.

Investors can carry the balance in their savings account going forward into different funds or they can check to see if they can simply divert future contributions into a combination of lower-risk funds - or even higher-risk funds if they're feeling bullish and think now is a time to capture the full benefit of an upswing.

SSIA holders should check if any charges apply for doing this before they make the switch.

Deciding what course of action to take, if any, "very much depends on the individual and their own attitude to risk", concludes Mr Corry.

Nine months isn't a very long time in the world of equities. Even the organised people who took out an SSIA when the scheme opened in 2001 and may be hurting from even greater losses for their trouble, still have more than three years to get over it.