Speak Out: Investing in Art
By Jeffrey Sussman
ART TIMES Winter 2014
There are numerous approaches to investing in art. You can ask dealers about art, artists, and prices; you can consult art catalogues; you can attend auctions.
When encountering a work of art that captures your imagination, rather than consulting dealers who have a vested interest in your making a purchase, you should begin by researching the artist. Do an Internet search. Learn about the artist’s education, commissions, and exhibitions. You may even be able to Google the work of art itself. Various sites, such as artfact.com or even eBay may provide important pricing information. For further assurance, you may even choose to get an appraisal. With that panoply of information, it will still be your taste, sensitivity, and economic wherewithal that will guide your judgment.
When deciding to purchase a work of art, you will surely consider its monetary value as an investment, but art should not be perceived as just a commodity. It’s not like buying corn or wheat futures. Art, unlike commodities, should give you pleasure for years. Art can inspire the collector’s pride, not only pride of ownership, but also the pride you will experience when showing it to your friends and colleagues. Ultimately, as both a thing of beauty and a thing of monetary value, it may be left to heirs, or sold at auction, or sold privately to another collector. If history is a guide, the value of the work will increase over the years.
While New York City is the center of the art market, where the highest prices are paid at auction and at prestigious galleries, there are so many galleries in New York City that one can find numerous works of art that will one day be worth considerably more than current valuations. Finding such galleries and the works of art exhibited therein requires constant investigation. There are many wonderful surprises awaiting the thoughtful and adventurous lover of art. I know of many people, including myself, who have found wonderful works of art that have increased significantly in value over the years. And it is contemporary art, by the way, that holds out the greatest opportunity for the collector.
On a recent financial panel whose topic of discussion was Art as a Financial Asset, the panelists agreed that high-end contemporary art is the “place to put your money right now for the highest return when investing in art.” According to the AMR Art 100 Index, the price of art has increased more than 8% annually over the last 25 years. According to The European Fine Art Foundation, the global art market is now approximately $56 billion. Of course, the monetary benefits of owning art are considerable: it’s a hedge against inflation, it’s a hard asset, and it serves to diversify one’s investment portfolio. In fact, studies have shown that art has frequently outpaced such equities as bonds, CDs, money market funds, and other conventional savings instruments. The Mei Moses® World All Art Index shows positive returns on the sale of art over the past 50 years. Art sales have outperformed annuities, bonds, and fixed income over the last 10 years. As a quantity of measurable value, art has shown to be an effective hedge against increasing prices when inflation rises. On average, art has performed significantly better over the last 40 years when inflation is rising. Returns on art are often weakest when inflation is falling. In other words, the prices of art can be substantial and sustained when the financial environment produces extended periods of mounting prices. Now, during our low interest rate environment, a static global economy, and unattractive bond markets, art as a financial asset is attracting ever larger portions of the investment community, including institutional investors, who are seeking significant returns on their investments as well as diversification of their portfolios.
While investing in art is a satisfying pursuit for affluent collectors who value a high return on their investments, there is much more that motivates the lover of art who is an ardent collector: Works of art not only provide collectors with a high level of prestige and status, but a collector, in addition to being admired for taste and sagacity, may also be perceived as a special individual who, by supporting the world of art, has admirable eleemosynary motivations.
Altogether, investing in art has proven to be an important social, cultural, and financial activity, one that supports thousands of creative artists, while enriching our culture and offering important and manifold opportunities to enhance our civilization. Those who invest in art are performing an activity that not only benefits themselves, but the entire world of art.