AIB Managed SSIA Account, What Should I do ??

eon

Ok I have a AIb Ark Life mananged fund since
30-8-01 im paying in the pull amount of €253.95 per month

I got this statement last week

Premiums paid to DATE €5332.94

Values To Date 30-4-03

Gross € 5787.17
NET € 4456.12


To be honets I dont know much about this thingsso Id really like som advice on this,

This is how I see it

I have paid in €5332.94 and if I transfer my funds into a deposit I will be only transfering the NET amount which is a lose of €876 odd

Is this correct or am I stupid


__________________

sceptre

Originally posted by eon
I have paid in €5332.94 and if I transfer my funds into a deposit I will be only transfering the NET amount which is a lose of €876 odd

Is this correct or am I stupid

Totally correct. Shares are like trousers - they can go down as well as up.

hamster

Hi eon,

Can I ask you a few questions besides going through this? Just want to know your thoughts on the following questions:


1) You are one of the 300,000 (out of 1.2M) people that went for equity. Did you plan for a 5+ years investment? Equity is like trousers (as sceptre points out) - they can go down as well as up. That means they you might be up +20% after 30-08-2006... but maybe you'll be down -20% but the longer you are in the game the more likely (long term) you will get a decent return.

No guarentees of course. That means you may need to stay invested longer than 5 years (ie once the SSIA finishes) or maybe not but .... leading onto the next point.....


##########################################

2) When you picked out AIB Managed did you understand the charges that go along with your equity investment? Did they mention them to you?

ARK LIFE have typical equity fund charges:
a) Annual Charge
b) A bid/offer spread.

Do you know what your annual charge is? Get out the fancy AIB booklet or ask them. I guess it is 1.5%. That's 1.5% on the entire actual worth EVERY year (applied on a monthly basis). They charge this to "manage" the fund. They think they can out perform the market. 9/10 managed funds never do so... and this becomes more and more apparent for long term investments.

Think about it, they would have to buy in and sell out shares at the right time nearly everything time. Funds such as Quinn Life attempt to follow the Euro Stoxx 50 index or mirror (as near as possible) the Irish ISEQ (picks key companies). Low charges due to computer tracking. These are index tracking funds. Of course volatility is greater. Plus you have utter complete visability on charges and worth. Try that with a managed fund with a bid/offer price. It internally includes stamp duty and broker charges. Not visible. That is separate from the Annual charge.

Do you know what the bid/offer spread offer is? This is an intended vague charge. Normally this is 5%. I think ARK LIFE for the SSIA offered a 3% spread. How this works.. every month... 100% of your money is invested. This is called the Offer price. The Bid price is 3% less, ie. only 97% for you and 3% for them. The 100% figure grows internally until you cash it in. So you get the bid price when you cash it in. That's what you are currently quoted I hope.

I assume that includes the government portions. Just think in terms of your total investment per month: 317.44 per month.

Charges have a BIG impact... they DO matter:

Here's a theoretical 5 year example of yours... to keep it simple lets assume the figures don't change... so we can see the magnitude of the charges.


Date Invested 1.5% Charge 3% Bid/Spread
30/08/01 0.00
30/08/02 3809.28 57.139 114.28
30/08/03 7618.56 114.28 114.28
30/08/04 11427.84 171.421 114.28
30/08/05 15237.12 228.562 114.28
30/08/06 19046.40 285.703 114.28

Subtotal charges: 857.105 + 571.4

Total charges: 1428.51


That's a whopping 1,428.51 euro in charges. Again assuming that your investment managed to finish each year with the amount you put in. See the 3% bid/spread charges of 571.4 euro. That money is pocketed by ARK LIFE after 5 years. Your fund would have to grow by (in this case) by more than 1,428 euro to show a profit after the annual management charge! That's more than 7.5% of your 19,046 figure.

Ark Life (and others) shouldn't be using these bid/spread charges. After 5 years if you still want to stay invested you should probably move to a cheaper fund manager like Quinn Life or EBS. Quinn Life charge only a 1% Annual Charge. That a big different on 19,046 every year after year 5. 1% would be 190.46 euro while 1.5% would be 285.69 per year. Ouch!

Let's see that again with a simple index tracker fund:
Date Invested 1 % Charge No spread
30/08/2001 0.00
30/08/2002 3809.28 38.1 0
30/08/2003 7618.56 76.2 0
30/08/2004 11427.84 114.3 0
30/08/2005 15237.12 152.4 0
30/08/2006 19046.40 190.5 0

Total charges: 571.5

Wow..without that bid/spread and extra management charge make an a big impact....and that's only 5 years...imagine.


##########################################

3) Final question, eon can you hang in there or do you need the money?

Eon, you seem to be down about 23%. That's about right. That's the result of 3 years of falling stock markets. Of which last year was particularly bad. The ISEQ index was done by about 29%. I would recommend you to hold tight as it's really too late to bolt. The market could possibly fall again but the chances are that... in the long run... it will do better.

The good news is that each month you're money is buying cheaper units and more of them. This means when/if the markets
recover you will benefit more from it as your coming up from a lower base. This is Dollar Cost Averaging. If the fund comes back strong in the medium/long term future you will eventually beat cash. The only thing is that the charges you have are a drag on performance.

If you switch it into ARK LIFE's "secure" fund (I assume you can but watch the bid/offer again!) you money will grow at sickly desposit rates in there. You could also just put in future contributions into this fund whilst leaving the equity part remaining invested... but you will lose out to probable postive dollar averaging.

BUT, DON'T CASH in the SSIA now. You will lose 23% of the entire fund.


Maybe in future you may want to consider a cheaper fund like Quinn Life or EBS. www.askaboutmoney.com can give plenty of advice on this. Funds like Quinn Life are thin on the ground so apologies for mentioning it all the time. If anyone else knows of others I would love to know.



There was another thread with another person with an ARK LIFE managed fund (NOT SSIA):

Here's a long term scope of charges. This person had been investing since 1992! That is over 10 years!

Amounted invested 1.5% charge 5% bid spread
1992 1524.00 22.86 76.2
1993 3048.00 45.72 76.2
1994 4572.00 68.58 76.2
1995 6096.00 91.44 76.2
1996 7620.00 114.3 76.2
1997 9144.00 137.16 76.2
1998 10668.00 160.02 76.2
1999 12192.00 182.88 76.2
2000 13716.00 205.74 76.2
2001 15240.00 228.6 76.2
2002 16764.00 251.46 76.2
2003 17526.00 274.32 76.2

Actual 2003 Worth: 15000.00

(note this is after a 30% fall in 2003, otherwise... it would have been closer to profitability if not for the excess Ark Life charges).

Total charges: 2698 (ouch!)


Charges do matter. Of course managed funds need some charge but not loaded like many Irish ones! Ark Life, like some others, do so many of these funds that charges should be lower.

thegills

Don't forget that if you withdraw the cash before the 5 years you get penalised by taxation. That could be why the transfer value is low.

hamster

Originally posted by thegills
Don't forget that if you withdraw the cash before the 5 years you get penalised by taxation. That could be why the transfer value is low.

I believe the quote is the value of what it's worth internally. If he withdraws now it be shredded totally by 23%. I assume he can stop contributing to it if he wanted however and leave the amount sit in invested.