Fine Art Collecting – A New Form of Investment?

Fine art, continues to be a favorite son of today’s investment market and it is becoming more main stream than ever.  I was a Registered Investment Advisor (RIA) and a Commodity Trading Advisor (CTA) in the private sector.  My company managed over 100 million dollars on a cash basis in the financial market for hundreds of clients.  The first thing that we always tell our clients is “past performance is not Indicative of future results”.   Yes, historically investment in fine art has yield better returns than the financial market and yes we see that potential continue to exist.  However, nothing is fool proof, anyone who tells you that there is no risk associated with purchasing fine art as an investment, frankly, does not have your best interests in mind.

As with any investment, there are always risks involved, be that of depreciation of assets or liquidity of the market.  What defines a good investment is one that has reasonable “calculated risk” with good upside potential.  For a short term investment you are also looking at good liquidity, meaning, how easy it is to get out of your investment position.  But a “suitable” investment for one client is not necessarily suitable for another.  During the time that I was a money manager, it was not uncommon that we would turn down a client who was willing to pay for our service. This occurred when we felt the investment profile did not match our client’s risk profile and needs or, that the risk exposure was outside of their means (which I will address later).

Jack Storms Cut Glass Art Sculptures has high value at beginning prices that are very affordable.

We can all see that fine art has traditionally out-performed the S&P 500 as a long term investment and many auction houses continue to make record sales.  However, fine art investing is not typically appropriate for the short term. When compared to traditional investment vehicles such as stocks, options, mutual funds, and commodity and futures market, it is definitely not as liquid.  This is true because the masses have not yet realized collecting art is lucrative.

This incredible black and white fine art photograph by Phil Borges has doubled in price since it was sold out...

With these things said, is fine art a good investment?  Yes.  It has out-performed the financial market historically and we have seen the trend of its continuing appreciation.  An original work of fine art is not something that can be duplicated.  Therefore, there is a value associated with that.  This is particularly true when the artist is being recognized collectively by a broad audience.

Fine Art is the only investment vehicle that I know of that can, through aesthetics changes people’s life, increase the quality of life and even improve productivity.  Many companies have found that by providing their employee with a harmonious and beautifully inspired environment, the productivity of the employees go way up and, if the investment is smart, the value of their art collection also goes up.  Sometimes the art collection in a company is worth more than the value of the company as a business.  It’s kind of like a restaurant’s wine collection is worth many times the value of just the business.  Did you know that the world renowned San Diego Wild Animal Park’s botanical asset is actually worth more than the value of the animal collection that they had?  Further, there are more fine art works in corporate collections than private collections.  Many companies use it as a means to diversify their investment portfolio. If you have a business, consult your accountant about the possibility of writing off or depreciating the cost of the purchase as well for additional tax benefit.  There may also be other tax benefits to owning and investing in art.

Serge Marshennikov's Original Female Oil Portraits have been sold through important art auctions, including famous Christie’s of London and Bonham's in Knightsbridge. His work is in much demand and his prices are constantly rising.

Does fine art investment have risk associated with it?  Absolutely.  You can experience depreciation at times especially if you are trying to sell it quickly. There are a number of factors that come into play, and understanding those component factors are key to success.

Is fine art a suitable investment for me?  Well, this depends on many factors: 1. What is the source of funds that you are using to make this investment?  2. What is your investment time frame? 3.  How liquid are your other assets? 4. Would it devastate you financially if you are not able to liquidate your position?  These factors are actually all inter-related.

Fine art investment is a intermediate to long term investment so please do not use money that you need to pay your bills to make an investment.  Also, in order to liquidate your position (sell your artwork), you would likely go to an auction house or the original dealer, and sometimes even through private sales.  It can sometimes it can take months or even longer to sell the work.   If any of these things would put you at great risk, then it is probably not for you.

So if you are ready to include some fine art in your life to increase the quality of your life and to enjoy the potential benefit of the appreciation, don’t forget to contact your art consultant so that they can guide you through the process of establish your collection that is best suited for your needs and style, be it glass art, original paintings, whether contemporary or traditional, or even sculptures.  We have seen quite a few artists whose works have appreciated consistently over the last few years, if you love art, why shouldn’t you benefit from the appreciation?

Contemporary Chinese artist Hu Jundi's paintings have also been successfully auctioned in China.

Serge Marshennikov's Original Female Oil Portraits - Light Dream At Noon

In the Serge Marshennikov painting “Light Dream At Noon”, the artist’s female nude model lies with her exposed right breast and arms vulnerably placed over her head. But the viewer becomes captivated by the artist’s detail work on the canvas. Serge’s ability to delicately paint the fabrics and the detail work of the lace texture becomes the viewer’s focus.  But afterward, your eye will study the softness of the subject and her simple beauty. When looking at the her hand, the viewer will recognize the true ability of this artist’s talent.  Serge Marshennikov has become one of San Diego’s finest artists and we are looking forward to newly arriving future master works.

Serge Marshennikov paintings are widely recognized and regarded.  His works also have been auctioned at high prices at such esteemed auction houses as Christies as well as others worldwide.  This is quite an accomplishment for a living artist and the currently escalating valuations reflect this desirability of his work.  In the recent decade where traditional investments have returned little with substantial volatility and risk, such works as those of Serge’s have appreciated nicely.  As a result, if Serge’s work grabs you, a purchase is smart for all the very best reasons;-)

Michael Hajdaj is the gallery director at Hallmark Galleries in La Jolla where he can most frequently be reached.  La Jolla and the surrounding La Jolla cove are a destination of many world travelers each year.  This area is part of San Diego and is a highly regarded art community there.