Book Review > Understanding Investments: An Australian Investor’s Guide to Stock Market, Property and Cash-Based Investments

This latest edition of “Understanding Investments” by financial consultant Charles Beelaerts (with Kevin Forde) provides a handy 355 page introduction to the principal areas of investment in Australia.  Published in early 2010, it comprises 23 chapters, divided into two parts – the first covering the basic information investors need to know, with the second examining the main investment options open to investors, namely, stocks, property and cash-based investments.  The range of topics covered is wide and readily shown by the chapter titles:

The book starts out with 13 practical ground rules for successful investing, followed by a very good overview of the global financial crisis, what it meant for investors, and what they can learn from it. All topics are dealt with in a practical manner and to a reasonable depth, which provides potential and novice investors, in particular, with a good base from which to develop their knowledge and experience.  Issues such as record-keeping, reading a prospectus, and choosing an advisor or agent are covered, too. Taxation aspects of investment are dealt with clearly and cautions provided about the more exotic investments, although stronger cautions relating to futures, contracts for difference and margin lending, would have been preferred, particularly given the way the latter two are promoted these days. While readers are encouraged to be a contrarian, a brief summary of other investment approaches would broaden readers’ knowledge and highlight that there is no one right way to invest.

The book is easy to read and well laid out, with a helpful bullet-point summary at the end of each chapter. One of its great strengths is that it covers such a wide selection of investments and associated investor issues in a practical and informative manner.  It is a book suitable for investors just starting out and those partly down the track of their investment journey: it can be read chapter by chapter or used as a reference book, dipping into as required. 

Some small enhancements would make future editions even more useful.  While many numerical examples and explanations are provided throughout, the book contains no graphs or charts, which are often easier to comprehend than straight figures.  The use of graphs and charts (for example, illustrating the benefits of diversification or the movement in different markets over time) would be beneficial and make particular points more clearly. Similarly, it is hard to comprehend an explanation of technical analysis without a chart or two!  The addition of a bibliography, and references to classic investment texts and more online sources, would aid those wishing to learn more about particular topics and investment in general. 

An error appears on page 174 in comparing licensed investment companies with managed funds and the tax treatment of capital gains. It is stated, Within LICs, there is no capital gains tax discount because companies are not entitled to claim this discount, whereas, since 1st July, 2001, this disparity has been removed, so that the tax treatment of capital gains made by LICs is on a par with capital gains made by managed funds and individuals. This means that if an LIC pays a dividend that includes an LIC capital gain amount derived from the sale of an asset held by the LIC for more than 12 months, an income tax deduction of 50% of that amount (capital gains tax discount) can be claimed by the LIC shareholder. Thus individuals, super funds and trusts (provided the trust distributes to an individual and not a company) can claim the applicable capital gain discount as though they owned the share directly, as is the case with unitholders in managed funds. LICs show the normal dividend and the LIC capital gain amount separately on their dividend statements.

All in all, this latest edition of Understanding Investments provides top value – a practical and useful guide and reference for novice and intermediate investors at an affordable price. 

Owen Davis is a member of the AIA.