Investing In Fine Art Can Mean Pretty Profits
If you’d added a few paintings to your portfolio over the last few years, instead of all those bank stocks, your retirement nest egg might be looking a little different right now.
Indeed, for the ten-years ended July 2010, the price index of all fine art work sold more than once worldwide has produced a nearly 11 percent annualized return, outperforming the Standard & Poor’s 500 index of large cap stocks and most other asset classes, including bonds and commodities—though gold was the clear frontrunner during those years, according to artprice.com in France, which tracks the market.
Fine art includes paintings, sculpture, prints, video and photography.
Despite the economic slump, strong recent sales of Impressionist and modern art pieces in 2010 similarly pushed the Mei Moses “All Art Index” to a 13.4-percent gain for the first half of the year, compared to a 6.5 percent loss for the S&P 500 index, according to artasanasset.com, which maintains the index.
Over the longer term, the Mei Moses Fine Art Index of repeat art sales at the leading auction houses and the S&P 500 produced roughly equal compound annual returns over the last 50 years.
“We view art as a very interesting long-term asset class,” says Philip Hoffman, chief executive of the
, an international investment partnership in London. “There are a lot of opportunities to make significant capital growth if you know how to buy and sell.”
Indeed, investment-grade art enjoys a low correlation with other asset classes, including stocks and bonds, strengthening its case as a candidate for portfolio diversification.
And some maintain they can act as an inflation hedge, since “real assets” (like gold) tend to rise in value while the value of money falls.
Why, then, doesn’t everyone sink their savings into canvas?
For one thing, art is a volatile asset. It’s hard to tell when demand for a certain genre will suddenly surge or dry up.
After a ten-year run, for example, in which Chinese contemporary art saw prices rise more than 500 percent and Indian contemporary art enjoyed a 700-percent gain, prices for works in both categories then fell by 30 percent in 2008 and 2009, according to Artprice.
Another reason to tread lightly? Art is far less liquid than other financial assets, making it harder to sell in a pinch.
Lastly, keep in mind that indexes which track repeat sales are somewhat skewed because they include only art pieces that already have an established following.
Risk Management
That said, if you’re tired of watching Wall Street throw cold water on your 401(k) and are ready to diversify into an asset you can enjoy, there are steps you can take to mitigate risk and boost your profit potential—and you don’t have to be a Rockefeller to do it.
According to Artprice, some 70 percent of all artwork sold at auction between January 2008 and June 2009 was priced at $5,000 or less.
During that same period, “affordable” art priced below $5,000 gained 60 percent in value, while higher end pieces gained a staggering 150 percent.
Before you even think about putting down money, however, it’s important to educate yourself on the forces effecting the art market overall, and the niche you’re hoping to pursue, says Paul Provost, senior vice president, director of trusts and estates at Christie’s auction house in New York.
“The art market is made up of a series of micro markets and each one moves in accordance with its own dynamic,” he says.
American furniture and decorative folk art, for example, have a different demand cycle than, say, classical antiquities, impressionist paintings or post war contemporary pieces.
“It’s the same with investing in the stock market,” says Provost. “You have to drill down to the issues surrounding large-cap, mid-cap and small-cap stocks along with the different sectors. You’re not just going to say, ‘I want to invest.’”
