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.
Across all collecting categories, art has a stronger positive correlation with the price of gold than with other asset classes, indicating investors’ perception of art as a value-preserving asset class rather than an investment vehicle.
Despite recent economic downturns, the art world continues to flourish. Reports from art-market experts such as Christie’s, Sotheby’s, 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.
The global art market is a marketplace of buyers and sellers trading in the services, articles, and works-of-art and culture commonly associated with the various arts. While the market remains predominantly offline, online sales have seen increasing growth in recent years. The global art market was valued at over 67 billion U.S. dollars in 2018, up from almost 64 billion the previous year. This increase is also shown in the volume of global art sales which reached approximately 40 million transactions in 2018, up from 39 million the previous year. When looking at different regions, North America held the highest share of the global art market, with Europe placing second. According to the 2019 Deloitte Luxembourg Art and Finance Report, art and collectible wealth is estimated to be worth US $1.74 trillion. UHNWI wealth associated with art and collectibles was worth an estimated US $1.742 trillion in 2018, up from US $1.622 trillion in 2016. The projection for 2023 is that this will grow to an estimated US $2.125 trillion.
Artnet’s Index for Top 100 Artists produced an 8% Compound Annual Growth Rate (CAGR) between 2000 and 2018, compared with 3% for the S&P 500.
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.
According to the 2019 Deloitte Luxembourg Art and Finance Report, wealth transfer is boosting demand for art and estate planning services. 76% of collectors said that estate planning would be the most relevant service for them (up from 69% in 2017). This indicates that collectors’ top priorities are estate planning and generational wealth transfer, and art professionals strongly agreed.
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. We also provide your heirs with the information they will need to store, insure, protect, and preserve the artwork.
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.
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.
According to the 2019 Deloitte Luxembourg Art and Finance Report, collector finance dominates the art-secured lending market. The market for art-secured lending has grown over the past ten years, with the market size in 2019 estimated to be between US $21 billion and US $24 billion in outstanding loans against art. The estimated value of loans underwritten to collectors and private individuals is between $18 billion and $20 billion, which represents around 90-92% of the overall art-secured lending market.
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.
According to the 2019 Deloitte Luxembourg Art and Finance Report, collectors increasingly see their art as an integral part of their total wealth. 81% of collectors surveyed said they wanted wealth managers to incorporate art and collectibles into their service offering, which was up from 66% in 2017 and the highest reading since the report was launched in 2011.
The graph above shows the Sotheby’s Mei Moses Index for the broader art market from 1950 to 2018. The index benchmarks at 1 in 1950 and shows the trajectory in demand for the overall market, a compound annual growth rate of 8.8%.
*What is the Southeby’s Mei Moses Indices?
Acquired in 2016, the Sotheby’s Mei Moses Indices are widely recognized to be the preeminent measure of the state of the art market. Leveraging over 60,000 repeat auction sales for the same object over time, Sotheby’s is able to produce objective art market analysis to complement the world-class expertise of its specialists.
Developed in 2002 by New York University Stern School of Business Professors Jianping Mei, PhD and Michael Moses, PhD, the Sotheby’s Mei Moses indices control for differing levels of quality, size, color, maker, and aesthetics of a work of art by analyzing repeat sales.
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.
Analysis of repeat auction sale data from Sotheby’s Mei Moses suggests that works of art held off the auction market for at least ten years benefitted from the “holding period effect”, in which works were more likely to be sold for a profit and had less volatile Compound Annual Returns (CARs).
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 upon request.
Extensive knowledge and experience in beginning and maintaining collections.
Exclusive opportunities to invest in works at prices unavailable to the general public.
Specialized knowledge about specific artists, artwork, and assets.
Support in building and maintaining individual and corporate portfolios
Awareness of opportunities to utilize art investments through tax benefits, gift giving, and other options.
Awareness of opportunities to utilize investments through tax benefits, gift giving, and other options.
Information, photos, and questions regarding consignments should be emailed to: firstname.lastname@example.org
As a leading expert in art as an investment class, Rayah Levy brings over a decade of industry experience in facilitating the entire process for non-cash charitable donations for clients.
Since 2007, ArtéQuesta has assisted clients with the donation of artworks to various organizations for non-cash charitable deductions. When we are able to apply our expertise, the non-profit (501c3) of our client’s choosing will benefit, as will our clients who receive the donation value for the IRS-approved donation value of the artwork.
With the ever-changing economic climate, many clients have relied on ArtéQuesta to facilitate the entire process of their art charitable donations as a reliable form of financial planning. Art is a strong, globally recognized asset and has historically been an extremely safe long-term portfolio option.
For more information of how this opportunity can benefit you, contact us at email@example.com