Fine Art Collecting as an Investment Vehicle

Many of you responded to our most recent email update about purchasing art in this economy and wanted more information.  Again, our clients are often savvy art collectors and we are really privileged to be of service.  So I have put together the following information for you, hopefully this would answer most of your concerns.

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.

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...

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

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 Jundis paintings have also been successfully auctioned in China.

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

4 Comments

  1. Jacob
    Posted November 29, 2008 at 3:53 pm | Permalink

    Thanks for the article. This is a very interesting read. I am curious, since you were a money manager, can you recommend some services in the stock market that is worth checking out. Sorry this is sort of not related to art. But I’d like to make some money to purchase some of the art. Thanks.
    JS

  2. Laura
    Posted December 1, 2008 at 4:01 pm | Permalink

    I watched my aunt collecting art for years after her husband passed away. Later she was able to send my three cousins to colleges from the sale of the art. It is definitely worth looking into with good help if you can do it.

  3. Randy B
    Posted December 3, 2008 at 1:07 am | Permalink

    Thanks. I have indeed seen my photography collection appreciates over the years and I hope I don’t have to sell them for money. I started collecting them because I was drawn to them and was very lucky to not lose money as well… Be careful what you buy for sure.

  4. Malcom Wagon
    Posted June 17, 2010 at 8:50 pm | Permalink

    Good information in this blog.

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