Tumbling markets could reduce value of SSIAs

A surprise drop in global stock markets yesterday could wipe hundreds of euro from the value of many SSIAs just a day before …

A surprise drop in global stock markets yesterday could wipe hundreds of euro from the value of many SSIAs just a day before they are due to mature, writes Claire Shoesmith.

Markets around the world plummeted amid concerns over slower economic growth in China and the US. More than €4 billion was wiped off the value of Irish shares alone in one of the worst single trading sessions for the Irish Stock Exchange.

The performance in Dublin was mirrored elsewhere, with European shares experiencing their biggest one-day percentage fall in nearly four years.

Britain's blue-chip FTSE 100 tumbled 2.3 per cent, with banks and mining stocks among the worst hit. The Frankfurt and Paris exchanges slid about 3 per cent.

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The FTSEurofirst 300 index of leading European shares closed 2.86 per cent lower, erasing nearly two-thirds of its gains since the start of the year.

US stocks also tanked, sending the benchmark Standard & Poor's 500 index to its biggest one-day slide in more than 3½ years.

The sell-off wiped out the 2007 gains for all three of the major US stock indices, with the Dow Jones industrial average down 3.29 per cent, the S&P5000 3.44 per cent weaker and the Nasdaq Composite Index off 3.86 per cent.

Many equity-based SSIAs (special savings incentive accounts) that are due to mature at the end of February will have their valuations based on the level at which markets close today.

Unless equities stage a significant recovery today, many people will miss out on substantial amounts of money.

As of the end of December, the best-performing equity-based SSIAs were worth about €30,000, according to a recent report.

On that basis, the 3.5 per cent decline in the Irish market yesterday could have wiped as much as €1,050 from a fund that had been invested solely in Irish stocks.

The strong 2007 performance by Irish stocks prior to yesterday - the Iseq index had been up about 6 per cent prior to yesterday - could exacerbate the size of the losses in some cases.

Until now, those SSIA holders who signed up later for the scheme had been doing better than those who were quick to take the Government up on its €1 for €4 bonus offer. Not only did they miss some of the worst of the dotcom crash, they also reaped the benefits of the strong recovery of the Iseq at the end of last year after a mid-year lull.

However, any drop at the end of the five-year savings term carries an even greater sting than earlier blips. Not only is the fund more valuable, but it also has little time to recover before maturity.