The price of a painting or a sculpture, which resembles the value of luxury real estate might astonish or even enrage the public, but the high figures have caught the attention of economists, investors, and bankers. Nowadays, art buyers not only acquire art for the intangible values associated with having and enjoying a piece of art, but also for investment purposes.
We have compiled some reasons as to why investing in the prestigious area of art can be a fantastic investment.
One of the reasons it has become so popular as an alternative investment, is that the global art market is generally considered completely uncorrelated to the world’s major stock markets. Also, at the very least, less dramatically affected by macroeconomic swings and geopolitical confusion. It can therefore be used by investors as an excellent portfolio diversification tool, especially in times of economic uncertainty.
2. Hedging Inflation
Another key factor for including art in investors’ portfolios is that in times of rising inflation, art can be an effective hedge, protecting capital against inflation erosion and currency devaluation.
3. Asset Backed Investment
Investing in a work of art means that you become the owner of a tangible asset which will always, unlike some other investments such as stocks and shares, have a residual value. Art is a store of value that generates moderate positive real return.
Last but not least, there are the philanthropic benefits of purchasing art, from financing up-and-coming artists to building a collection to preserve cultural heritage. Collecting fine art is as much about beauty and desirability as it is about the investment value.
However, the functioning of the art market is complex, and approaching art as a pure investment can be difficult. It is a market that is unregulated and lacks transparency, unlike many other areas of investment. A large segment of the market is executed through private transactions, making it difficult for outsiders to gain insight.
Additionally, art investment is best suited for long term gains, as it is not a liquid asset. Thus, you need to combine your passion with an informed decision. You cannot become a collector overnight, and it is wise to seek out some expert advice. Most importantly, art collecting requires passion and dedication and is one of the few, if not the only, investment you make where the decision to invest lies firstly in the heart.