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
investing is about knowledge and risk.
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
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 Lâ€™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
American Art Before 1950 13.1%
S&P 500 Total Return
U.S. Treasury 10-Year Notes
U.S. Treasury 90-Day Bills 5.5%
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
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
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
the beginning collector. If you like
For the client interested in the
in value but there are lesser-known
confidence you need to purchase fine art
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
valuable than another.
with American art only experiences a So, now that you’ve made the
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
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
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
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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
Let me help you convert your home equity to cash while retaining ownership, with no need to repay as long as you live there. For a reverse mortgage or for information about this unique option, please contact Jennifer Polites.
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.
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 firstname.lastname@example.org
Rose M. Anderson, CFP®, is the owner of Anderson Financial, Inc. and Pure Gallery, Inc., www.PureGallery.net. spring 2008|