Picture This-Art as an Investment

picture this: art as an investment

WRITTEN BY Rose M. Anderson, CFP速

BROADEN YOUR PORTFOLIO and receive years of pleasure from your selection.

L'ASIATIQUE - by Jean Paul Bocaj

Pure Gallery in Camp Hill, PA.

ART IS HOT. The record price for a single

“

Successful

investing is about knowledge and risk.

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magazine | s p r i n g 2 0 0 8

Risk Every investor understands the importance of

painting was broken three times in

diversification; by distributing capital among different

2006. The big auction houses

investments, the potential risk of the portfolio diminishes.

Christie’s and Sotheby’s sold a

There are two types of risk: systematic and unsystematic.

combined $1 billion worth of

Unsystematic risk can be controlled by diversification

contemporary art last fall and

within an asset class while systematic risk can only be

attendance is surging at art fairs such

mitigated by diversification between asset classes. With

as Miami’s Art Basel and the Armory

different asset classes moving in different directions at

show in New York. With people

different rates, the portfolio will perform more

making huge sums from managing

consistently.

hedge funds, it’s only natural that

It makes no sense to talk about an asset class unless

they want to show off their newfound

you have a means to measure the returns of that asset

wealth. And, while the wealthy have

class. Two professors from NYU’s Stern School of

always invested in art, more of us are

Business have created the Mei-Moses Family of Fine Art

finally realizing that as an asset class,

Indices® (1) and have tracked the return of art since

art belongs in an investment portfolio.

1956. I have created Table 1 (see next page) to show the

Successful investing is about knowledge and risk.

comparative returns of American art prior to 1950 and the All Art Index versus other, more common investments.

paintings, clockwise from top left: AU PAYSAN - by Leonard Wren THE INTIMATE MIND - by Sabzi L’AUBERGE - by Michael Flohr TENDER SHOULDER - by Hessam LETTIZIA - by Fabian Perez sculpture, center: ACROBATS - by Zaluski

Table 1: Compound Annual Return Art Indices vs. Financial Indices Mei MosesÂŽ All Art Index Last 50 Years Last 10 Years Last 5 Years Last Year

10.1%

American Art Before 1950 13.1%

S&P 500 Total Return

U.S. Treasury 10-Year Notes

10.6%

6.7%

U.S. Treasury 90-Day Bills 5.5%

Gold 5.5%

8.5%

10.5%

8.5%

6.9%

3.6%

3.0%

11.6%

10.5%

6.1%

5.5%

2.1%

13.8%

18.3%

34.6%

15.8%

2.7%

3.1%

18.4%

As you can see from the table, art

Nearly all of the research into this

diminishes its level of risk; an expected

can be not only a very good investment,

asset class indicates that art is riskier

return of 8 percent on a portfolio

but also a diversifier for an otherwise

than stocks, however. Mei and Moses

without American art carries an almost

well-balanced portfolio. Michael Moses

created a series of graphs that show the

11 percent risk, whereas the same return

says that because of the low correlation,

risk/return tradeoff of adding art to a

on a portfolio with American art carries

he suggests an allocation of 10 percent

diversified portfolio. Their data from the

only a 6.5 percent risk. Furthermore,

for those investors who have at least

past 50 years demonstrates that adding

when the expected return rises to 10

$500,000 in assets.

American art to an investment portfolio

percent, the portfolio without art holds a

spring 2008|

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INDIVIDUAL BULLFIGHT - by Dali

risk of 16.5 percent, while the portfolio

libraries covering art history and many

risk of 9.5 percent.

articles in current publications on more

nuances will become more significant

contemporary artists. The only way to

over time.

gain a sense of self-confidence to make

art, where do you start?

that first purchase is through knowledge.

are still available but may be out of your

It may take you a year to feel that you

price range. The most notable work

know your stuff, but take your time.

from Andy Warhol has escalated rapidly

There are many ways to acquire the

art shouldn’t break the bank—after all,

pieces available for more affordable

you’re just starting out in this new

prices. Salvador Dali is perennially

for investment. Note that investing in art

endeavor and you want to purchase

popular and much more affordable for

is different from selecting art to adorn

wisely.

the beginning collector. If you like

For the client interested in the

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in value but there are lesser-known

confidence you need to purchase fine art

painting.

(

Buying that first piece of investment

For example, many of the masters

knowledge that will give you the self-

your walls because you fall in love with a

((

You’re investing in art and these

decision to diversify your portfolio with

Knowledge

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valuable than another.

with American art only experiences a So, now that you’ve made the

46

There are a number of books in most

Still unsure of yourself? Don’t worry;

Picasso, there are selections that will

there are other ways to feel secure in

not only add value to a collection but

making these decisions. An art

will give you years of pleasure hanging

investment value of art, my first piece of

consultant can help. This person will

on your wall. Another prolific artist is

advice is to learn everything you possibly

work with you, and within your budget,

Joan Miro, whose work is readily

can regarding the period or artist in

to acquire the works that fit your time

available for the novice and

which you are interested. This isn’t as

period or your artist. This person should

intermediate collector.

difficult as it may seem. Visit museums

take the time to understand what you

and galleries. Ask questions and ask

know about the art you are trying to

investment is to select work from the

again until you understand what they are

collect and teach you some of the

emerging artists. These are artists of

telling you.

nuances that make one piece of art more

unproven quality and generally with no

magazine | s p r i n g 2 0 0 8

Another method of collecting for

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history for price comparisons. But it’s fun to search them out and make your own discoveries. It’s

Is it time for a reverse mortgage?

certainly riskier but you should be acquiring this artwork at lower prices than the established artists and certainly lower than the most marketable artists.

You need to have a trained eye for this type of purchase, which is where a consultant could certainly help.

You might want to visit the local art association and do so several times. Ask questions and take notice of those artists who are winning awards. Follow their careers for a year or so and see who else is buying their work. An artist with work going into a significant private collection or a museum collection is definitely someone to watch closely. Only when you

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feel confident should you make your first purchase from an emerging artist.

While the process is not stress free, it should give you a good feeling that you are acquiring something of rising value that you can enjoy on a daily basis.

My motto: Surrender to the beauty of fine art.

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1) More information on the Mei-Moses® Art Index can be found at www.ArtAsAnAsset.com.

Jennifer Polites cell 717.725.6596 toll free 800.404.9148 ext. 1011 email jpolites@beaconreverse.com

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Rose M. Anderson, CFP®, is the owner of Anderson Financial, Inc. and Pure Gallery, Inc., www.PureGallery.net. spring 2008|

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