Art is not only a tangible asset that can accrue in value, it is also a unique creative work. Ownership confers many rewards. You can enjoy viewing the artwork in your home or workspace, learning and gaining more from it day by day. Later, as your tastes, opportunities, or needs change, you can sell it, often for a significant return.
Financial analysts consider fine art an investment-grade asset class in and of itself. Art has long had a stable and visible place in the global-investment market, even more so over the last few years as the art market has expanded.
Despite the recent economic downturn, the art world continues to flourish. Reports from art-market experts such as Christie’s and Sotheby’s, the Mei Moses All Art Index, the financial-advisory company Deloitte Luxembourg, and the art-market research firm ArtTactic all indicate that the art world is thriving. The vibrant art-investment market means that even first-time investors can reap its profits.
Whether you want to build wealth, diversify your financial portfolio, plan for retirement, or bequeath artwork to your heirs for future investment, a single piece of investment-quality art may meet your goals.
Many people buy art because the returns can be extraordinarily high and can lead to sizable tax write-offs. Worldwide in 2011, $58 billion was spent on art in just the secondary, or resale, market.
In the 2013 edition of Deloitte Luxembourg’s Art & Finance Report, published in conjunction with ArtTactic, where 43% of the wealth managers surveyed said they were strongly aware of the developments taking place with regard to art as an asset class, up from 33% in 2011. Even more impressive, 60% of the wealth managers believe that we will see even stronger demand in the future for collectible and emotional assets.” The Deloitte ArtTactic Art & Finance Confidence Indicator which looks at wealth managers feelings about art as an investment, art-secured lending, and the general economic environment in the next 12 months confirms this outlook; the confidence indicator rose by 32% from 2011 to 2012, up to 42.3%.
With the global art market on the rise, the report found, increasing attention is being paid to the concept of art as an asset class, fostering the development of a new type of professional services in the art and finance industry.”
While the stock market continues to wax and wane, the art market has demonstrated remarkable stability. This June 2011 excerpt from the Mei Moses All Art Index shows the art market, whether in New York, London, or Europe as a whole, performing better than both the S&P 500 and the FTSE 100 Index.
New York All Art – 10.12%
London All Art – 19.79%
Europe All Art – 16.95%
S&P 500 Total Return Financial – 6.00%
FTSE 100 All Shares Total Return – 0.80%
Going back to the year 2000, the chart below displays the difference between the Mei Moses All Art Index versus the S&P 500 Total Return and the FTSE 100.
Passing your heirlooms and works of fine art to the next generation is a sound way to preserve wealth and protect your art legacy. ArtéQuesta makes the process safe, reliable, and easy.
Avoiding family conflict is a poignant consideration when managing heirlooms. Vague language such as “all my personal property is to be distributed to my children and grandchildren” can lead to terrible family rifts. It’s best to create a separate addendum to your will to explain clearly who is to own each specific work of art. Through its Heirloom Program, ArtéQuesta can assist in creating your will or living trust, retaining a copy of your wishes to help ensure that your artwork is properly transferred to the designated person or persons.
Bequeathing artwork to your heirs includes educating them on what to do with their newly acquired art. With the Heirloom Program, we provide documentation on the value of the artwork and authenticity of ownership. Your heirs receive a spreadsheet showing the increased value of each piece of artwork you owned and information on each artist. If your heirs have their own investment needs, we can recommend which works to keep and which to consider selling.
Insiders know that you can use your art collection as collateral-perhaps to purchase additional artwork. Most banks in the United States and internationally offer such loans; they also offer loans against your broader investment portfolio for art purchases, as well as for other purchases. Interest rates for these loans tend to be lower than those for home loans, which means the right investments can help build wealth. The size of these loans can range from as low as $250,000 to more than $100 million. For traditional lenders, spreads range from 2% to 5% above the London Interbank Offered Rate, or LIBOR, a primary benchmark for short-term interest rates. For asset-backed lenders (non-recourse), the spreads can range from 6% to 35% above LIBOR. As a result, your art purchase can pay for itself.
Most people buy art simply because they love it. Indeed, personal enjoyment should always top your list of reasons to buy a piece of art. Presumably, Cézanne’s The Card Players did not sell at auction for more than $250 million so that the new owners could hide it away in their attic.
Planning for retirement? Buy art. It regularly delivers a better return on investment than the banks provide your savings account. In the United States, you can use your IRA (Individual Retirement Account) and/or 401(k) to invest in art specifically with ArtéQuesta. Once you retire, you can sell one painting or sculpture a year and add as much as $25,000 or more to your annual income. And with an IRS 1031 Exchange, you can reinvest a portion of your profits in art for your heirs and avoid capital-gains taxes.
Regardless of the economic outlook, bankers, financial advisors, and wealth managers use fine art to balance their clients´ portfolios and diversify their asset base.
Many wealth managers and consultants advise their clients to diversify their portfolios with safe and growing investments. In periods of financial uncertainty, high-end art, unlike traditional assets such as real estate, government bonds, cash, or gold, represents a tangible asset that can be used to reduce risk and protect capital. In a survey from the 2011 Deloitte Luxembourg Art and Finance Report, 39% of collectors saw art as a key component of their portfolio-diversification strategy. The 2011 Mei Moses All Art Index* models the Risk-Return Tradeoff for those who do versus those who do not diversify their portfolios with art.
This graph illustrates how investing in fine art can strengthen your portfolio. For an expected return of 10.25%, including art (broken red line) reduces the risk to your portfolio from about 10% without art (solid blue line) to about 7%. For return levels where the blue line is to the left of the red line, as it is here, the implication is that adding art to your investment choices reduces the risk to the overall portfolio.
*What is the Mei Moses All Art Index?
Unlike stocks, artworks are not easily interchangeable; individual, unique objects require a different approach. Independent research by Professors Jianping Mei and Michael Moses, art economists at New York University’s Stern School of Business, has transformed the analysis of art as an asset class. Widely regarded as a reliable source of art-market intelligence, the Mei Moses All Art Index is rated by Morgan Stanley as one of the ten most important asset indexes in the world.
The Index is based on repeat auction sales, using a methodology similar to Standard & Poor’s Case-Shiller Home Price Index. It does not include art sold privately, through galleries, museums, or dealers, or any sale made outside of auction houses internationally, which account for the majority of annual sales in the primary art market.
According to Mei and Moses, “The indexes have been developed from a proprietary database, collected over the past 20 years, of over 30,000 purchase- and sale-price pairs for objects that have sold at public auction more than once.” The relative performances are compared with equities, government bonds, gold, cash, real estate, and more. This contributes much detail to the analysis of return, risk, and correlation among these assets over the short and long term worldwide, in diverse markets.
Art investment can be an intriguing opportunity, but if you aren´t experienced in the art market, your investment could generate a huge loss you weren´t expecting. Having the help of someone with experience in the art market is an integral part in growing your collection and your investment. Here are a few reasons why you should seek the advice of an art investment advisor.
As a rule, investors should plan to hold onto art for at least ten to fifteen years. Investing in art does not afford the same liquidity as investing in stocks, so your investment is rarely short-term. When done with an expert advisor, investing in art entails little risk, but it does require patience.
Auction houses, dealers, and galleries all have their fees for buying and selling art. Inexperienced investors often overlook these transaction fees and forget that down the line there will be capital-gains taxes as well. An art advisor knows about these fees and costs and will factor them in.
Commercially successful art is not necessarily a good investment. An artist can be wildly popular, produce many works in large editions heralded as “investment grade” art, and have hundreds of collectors. This doesn´t mean the work will someday become more valuable. Far from it: Commercial artists often flood the market. When they do so, too many people are buying and selling the artwork, and an artist’s popularity can fade. The collectors who rushed in may suddenly find that few people want to buy the work anymore. On the other hand, artwork by someone who produced few works or limited editions, or whose works are not being sold anymore, may be a fine investment–if you can find it. Scarcity increases the desire of collectors and investors and helps stabilize and increase the price over time. But rare art, by definition, is harder to find and more expensive to purchase. An art advisor can help you track down a rare piece of art, suggest a reasonable amount to pay for it, and let you know when the time is right (or not) to sell it.
Say you pay an art gallery $40,000 for a painting by Catalan artist Joan Miró. Chances are that piece is going to remain at that price for years: Well-known art usually requires a long holding period to appreciate in value. Or say you buy work directly from a well-known artist: He or she may give you a great price, but the art or artist may have reached the top of its market. In that case, it won’t have the potential to realize the gains you’d hoped for, at least over the period you allotted for your investment. An experienced art advisor can steer you away from artwork like this (unless you passionately love that Miró, in which case, you should buy it).
The best value for your money entails buying art from an emerging artist with obvious potential. It takes years to develop an eye for that kind of work. Just after World War II, Herbert and Dorothy Vogel, a postal worker and a reference librarian living in New York, built an impressive collection of American post-war art by buying work from very promising artists at prices they could afford. A few decades later, their collection was worth millions. Clearly, they are an exception–and an inspiration. With informed direction from people who know art and the art market, it’s still possible to buy investment-quality art at affordable prices, then sit back and watch the artist’s market grow, as well as the value of your investment.
Nobody can predict the future of art sales with 100% accuracy. Like any market, the art market is subject to ups and downs: Trends come and go unpredictably; entire collections can be sold without warning. During more prosperous periods, resale value can drop. An art advisor can help you negotiate this terrain. That requires knowledge of art and art history, an understanding of art-buying psychology, years| of watching the art market, knowing the financial market, and many other intangible factors. Just as you consult an expert for financial or medical advice, you should work with someone who understands the art market to advise you on what to buy and when it’s best to sell it. There’s a reason a disproportionate number of auctioneers become millionaires: They have an eye for investment-worthy art. Understanding art as an investment is also an art.
At ArtéQuesta, we integrate finance and fine art: When creating a portfolio, we assess a client´s needs, desires, and preferences, striving to maximize his or her appreciation of the art as well as its investment opportunities.
ArtéQuesta helps individual and corporate collectors build and manage art collections that deliver long-term financial growth. Because we maintain close connections with preeminent collections and artists, we can get competitive prices on artworks by 21st-century masters and emerging masters.
We can provide a comprehensive analysis of short-term and long-term potential and the optimal number of years you should hold onto the artwork for the best return on your investment. We can create packages for quarterly and end-of-year spending reports for tax benefits.
And we can advance your enjoyment of art, your awareness of emerging artists, your insight into the art market. We want to give investors a dynamic experience in the art market, enriching their lives in countless ways.
Extensive knowledge and experience in beginning and maintaining collections.
Exclusive opportunities to invest in works at prices unavailable to the general public.
Access to our quarterly catalogue of works, available only to our clients.
Specialized knowledge about specific artists.
Support in building and maintaining individual and corporate portfolios, including information and updated reports accessible through our secure online database.
Awareness of opportunities to utilize art investments through tax benefits, gift giving, and other options.
Opportunities to be part of historic projects available only to our investors and collectors.
Inside information on the art market.
Details about the artworks.
Career highlights from inside the artist's studio.
Our monthly art world updates.
Resources to enhance your understanding of art and the art market, including private museum and gallery tours, studio visits, lectures and special programs, access to recommended books and films, and much more.
As a collector of historically significant or museum-investment quality art, there will be opportunities to sell your collection for maximum market value. ArtéQuesta is pleased to offer our consignment services that will not only meet your financial expectations but will give you access to features only available in the primary market.
Information, photos, and questions regarding consignments should be emailed to: firstname.lastname@example.org
We only require a 20% resale fee, compared to 50% or more when sold through an auction house.
We track the artworks in our proprietary software to ensure protection and preservation of the artwork, which is important for historic works of art.
DEFER CAPITAL GAINS TAX AND RE-INVEST IN ART
We are able to offer 1031 Exchange when profits are reinvested into similar artworks.
LOWER PRICES ON PURCHASES
Many artworks can be acquired privately in the primary market where they can be found below market value. When you choose to reinvest your profits with ArtéQuesta, you are eligible to purchase artworks below market value that can increase the overall value of your fine art collection. This feature is not available at auction houses and galleries.
LEAVE IT TO ARTÉQUESTA
We handle all advertising, promotion and brochure material aspects in the consignment sale of your artworks.
We offer one on one support for the sale of the artwork to help meet the consignors financial or sale needs.