Art as an Alternative Investment

Art as an Alternative Investment

Art as an Alternative Investment

Art as an investment option provides investors with an opportunity to reduce risk a key advantage to any alternative-heavy portfolio. As with most alternative investments, art has the good fortune of not correlating with the ebb and flow of the regular stock market. This implies that, if the stock market has fallen down by 5% on any particular day,an art collector can be rest assured that his or her "investments" will not be affected that much.

Investment in art also helps in diversifying one's portfolio and reducing overall risk. Notably though, art as an alternative investment option itself has evolved considerably in the last decade or so. If you study the alternative investment sector closely, then you will quickly realize how building up a portfolio of random pieces that appeal to your individual tastes is not the best way to invest. Today, dedicated art funds have been set up, which are large organizations that employinvestment advisors who are specifically trained in providing help to investors with a little knowledge of the art market at large to gain access. The trick is that art is not only a hedge against inflation, but is a part of the widening plate of alternative investments which help in diversifying portfolios.

Here is an interesting fact: From 1875 to 2000, art as an alternative investment outperformed fixed income (though not equities). But the past two years have been a different story: with all the losses incurred because of the Financial Crisis, art as an alternative investment has triumphed over equities as well.

For skittish investors this news may come as a relief, but they must also then stomach the fact that art can be very expensive. The high price of a prized creative expression certainly makes it hard to say that investing in art is an option for everyone.An investor can profit considerably by investing in art,but it definitely comes with some sizable upfront costs. Additionally, there are difficulties involved in making the correct appraisal. One may argue that this problem is an issue with any financial asset, but in the case of art the problem is more pressing because qualities like uniqueness, the strong personal need and the emotional status of the buyer as well as the seller can influence an appraisal. And of course, art is not "generative" in the sense of investing in a farm or cottage industry, sincea piece by itself has no means of attracting periodic cash flows.

All that being said, buying-and-holding is a good strategy for art as an investment in fact, it is the only one that works. The costs involved in acquiring art pieces can be offset if oneactively manageshis or her portfolio. With the right amount of ambition, temporary cash flows can be achieved from owning art: consider bringing the art pieces to an exhibition. As a result, the value of a piece increases not only because since more aficionados will have seen and praised it, but also because the exhibition history of a piece is often considered in appraisals.

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