Portfolio Diversification through Art Investing
Art investing is an attractive venture to beginners and seasoned investors alike. However, those that have been in the game for a while may know something that someone just starting out doesn't. The key to any good portfolio is diversification. Ideally, your overall investment portfolio should be diversified with investments ranging from the low risk, low yield to the very high risk, high yield investments. This has proven to be the best way to protect investors from financial ruin if one investment goes belly-up.
Whether you are using art investing as a diversifier of your overall portfolio, or choose to invest only in art and want to diversify within your collection, the most important step is to educate yourself. There is no such thing as too much information, and the more you gather before jumping into art investing, the better you will be in the long run. Find out what the latest trends are, what the approximate price ranges are for the art you're interested in, and which dealers, artists, and pieces have a successful reputation.
Most financial advisors would suggest that art investing become part of your portfolio as a way to balance out the gains and losses of the standard stock market. The art investing market moves at a different speed and along different trends, so it may work in your favor when your financial investments are not performing as well as they should. There are certain art investments that are short-term, however the majority of art will perform better financially if it is held as a long-term investment. It is uncommon for a painting or sculpture to double in value overnight, but could easily return 10%-15% annually.
Art investing acts as a good diversifier to a well rounded portfolio because of its tangibility. Financial investments such as the stock market, bonds and securities are numbers on a computer screen to most investors. Anyone with a great deal of money in the stock market on October 19, 1987 or October 29, 1929 would tell you that your life's savings can disappear in the blink of an eye if it is entirely invested in intangible stocks and bonds. However, a 1907 work by Gustav Klimt, Portrait of Adele Bloch-Bauer, survived both stock market crashes and sold in 2006 for $135 million, clenching the title of the second most expensive painting to date.
Another benefit to including art investing in your portfolio is simply because it is art. While your stocks and bonds may sit in the hard drive of your computer or in a wall safe, your art investments can be enjoyed in your home or office. They will add possibly much needed culture to your everyday life. Artwork is often a conversation starter, especially a well known piece or artist. Nothing makes you smile on the inside quite like hearing a visitor tell you that your copy of a popular Picasso is wonderful, then being able to tell them that it is actually an original. Simply put, art investing can be a lot more fun than standard investing methods.
The tangibility of the art you choose to invest in could also prove to be one of its downfalls. Art investing does not provide the same liquidity as standard investing. Liquidity is what makes an asset easier to sell. When you invest in the stock market, buying and selling literally takes minutes. With art investing, it is more complicated than that. Buyers will want time to have the piece appraised and to think about the investment they are about to make. This can be a long process, and that is if there is a buyer ready when you need to sell.
Overall, art investing really works better when it is incorporated among other types of investing. Your short term financial investments will provide the liquidity you need, should you need cash right away. Long term financial investments will provide a more predictable outcome than art investing and a higher yield than short term financial investing. Adding art investing to his portfolio will round it out, providing a tangible item that may rise and fall in value, but that is yours to keep until value increases or you decide to part with it. Protect yourself and your finances with diversity in your portfolio, and diversity within your art investing.
