Art Investment as an Effective Strategy of Portfolio Diversification

10 Apr 2018

Investing in Art has become a more popular form of investment portfolio diversification among investors worldwide. I have recently had the pleasure to attend two conferences on the topic: the UNFOLD ART XCHANGE in Dubai (UAE) and the ASIA ART & FINANCE FORUM in Shanghai (China). In this article I will share with you interesting tips on how to effectively invest in art and profit from the growing international art market:

 

Art Investment: The Reason

A good investment should offer more than the financial pillars of capital conservation and the opportunity of a sound profit. The advantage of investing in art on one side is to protect the investor from the macroeconomic factors affecting financial markets (inflation, forex volatility, etc.) and on the other to gain the higher personal reward related to the history, the esthetic beauty and the prestige of ownership of a precious artwork.

Art can also hold long-term, multigenerational wealth and it could be a source of immediate liquidity in hard currency through secured lending based on art collateralization and international resale.

Mixing the opportunity of a financial return with the esthetic pleasure and physical ownership of a unique masterpiece, the art market is probably the most emotionally satisfying form of investment. Buying a piece of art is therefore a great choice for any investor looking for alternative investment opportunities aside from the financial markets.

 

Why Investing in Art is a Winning Strategy of Portfolio Diversification

 

    More rewarding than standard financial products

  • Esthetic Pleasure (beauty & harmony of the colors, shapes, composition)
  • Prestige of Ownership (artwork as non-fungible and unique asset)
  • Historical Value (age and provenience)

    Offers financial and risk diversification benefit

  • Less affected by macroeconomic factors than financial markets (inflation, forex, interest rates) 
  • Less Volatile in Economic Value (when proper diversification strategies are followed) 
  • Capital protected from extreme economic events (currency depreciation, bankruptcy) 
  • Art can hold long-term multigenerational wealth (tax incentives in many countries)
  • Art is a source of liquidity in hard currency (art-secured financing & international resale)

 

The S&P500 Index has been more volatile that Mei Moses All Art Index over the last 20 years. The risk associated with each index is measured by the standard deviation of the changes in their annual returns. The absolute risk associated with the Mei Moses All Art index has been much lower than that of the S&P500 (10.67 percent Vs. 19.25 percent respectively).

 

Art Investment: The Method

If stocks can be traded on the financial markets, artworks can be sold at auction. A few simple criteria should be followed to ensure a safe and rewarding art investment:

  • A good deal starts with a cost-effective purchase, leveraging on a sound expertise, auctions can be the best source of good deals to any collector looking for alternative investment opportunities. 
  • Don’t buy what you don’t know: Expertise is the winning word in the art investing business. For example, the value of an old master etching can be very different depending on the state (early prints made during the life of the artist are more valuable than later reprints), the edition (an edition of 50 is more valuable than an edition of 200), or the series (some works are more representative of an artist style and therefore they keep or grow their value more than others).

 

Art Investment: Key Success Factors
  • Expertise: buy within your field of expertise or rely on experts' advisory to exploit positive asymmetry of information buyer/seller in the global art market
  • Capital Conservation: hold the artwork as a long term investment (10 - 20 years)
  • Short Term speculative investment: profit from price gap primary / secondary market (< 5 years)
  • Liquidity: possibility of quick resale based on the purchase price Vs. average sale price at auction
  • Collective Value (1+1 > 2): related items together are worth more than the sum of single items
  • Risk management: diversify in old master, modern and contemporary art, fine wines, classic cars
  • Geographical Arbitrage: buy an artwork in a country where it is less known/relevant and resell it in the market of highest relevance.

Art Investment: The Tool

LOT-ART has been created to enhance the role of fine art investment as an effective portfolio diversification to financial markets. It provides direct links to the most reputable auction houses and bidding platforms worldwide, offering a comprehensive overview of the art auction market. 

Lot-Art Investment Advisory can leverage on its expertise and international network to select the most promising and cost-effective artworks for sale at auction or on the art galleries scene, assisting investors with acquiring quality artworks, assuring they are also good financial investments to guarantee the highest degree of liquidity, capital conservation and financial return.

Buying a valuable piece of art is a great choice for any investor looking for alternative investment opportunities aside from the financial markets. Lot-Art is the best tool for a cost-effective investment decision-making in any form of valuable assets. To learn more about the factors that professional art investors consider when bidding at auction read also the article: “The Business of Art Collecting”

 

For questions on how to effectively diversify your investment portfolio in art and other valuable assets contact Lot-Art Investment Advisory without obligations. 

This article was brought to you by Mr. Francesco Gibbi, Alternative Investments Advisor, Founder & CEO of LOT-ART | Worldwide Auctioning Made Easy

Source: Lot-Art

https://www.lot-art.com/auction-blog/Art-Investment-as-an-Effective-Strategy-of-Portfolio-Diversification/37

Art Investment as an Effective Strategy of Portfolio Diversification