Beyond aesthetics: Art as an alternative investment

Most investments available to regular investors today are usually paper assets—representations of ownership of an asset, such as a stock, bond, or money market account. They generate portfolio income, but their value or prices can fluctuate drastically depending on market conditions. They are in direct contrast to hard assets, which contain actual value in the nature of the item itself. They include precious metals (particularly gold and silver), diamonds, oil, real estate, and even artworks!

 

Image source: wfu.edu

 

Monetizing art is often considered an alternative investment. It is very illiquid and to some extent, risky. However, it can be a great investment option for people willing to put their money aside long-term.  Artworks, especially those created by established artists, are highly valuable. Their prices generally increase by age, but some can instantly be priced at the higher end of the spectrum if they were created by a famous personality. In some cases, valuable artworks (in all forms) may be found right in the attic: an antique wardrobe, pre-war photographs, a decades-old Chinese vase, or a painting bought many years ago and whose creator is now popular.

 

Image source: christies.com

 

Works of art’s prices are highly unpredictable. While they may generally increase over time, there is no guarantee that they could outperform stock indexes, for example. Most sales are conducted through private dealers and auctions are the most popular venues, attended only by people with the highest interest for such niche items. The best prices are given to those that were created by top artists—which include those that were virtually unknown while they were still alive but suddenly received considerable attention posthumous. Every work of art is unique, which means that it can create both opportunities and hazards for investors.

 

Image source: pablopicasso.org

 

Nonetheless, it is always a good idea to diversify one’s portfolio. A mixture of paper assets, currencies, real estate, and alternative investments can help one take advantage of the vast potential of these types of assets. As for works of art, however, investors should start with a genuine appreciation of the objects first before deciding to turn them into a platform to make money.

 

To get a professional advice regarding alternative investments, or if you wish to know more about investing as a whole, I recommend talking to an advisor at LOM Financial.