Art, antiques investing is for the long haul
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Story Highlights
- "There's a painting for every purse," says Michael Moses, art collecting expert
- Moses is co-creator of indexes for collecting modeled after well-known home price indexes
- Someone with $500,000 portfolio should have less than 20% in art and antiques
Most investments these days exist only as the ones and zeroes of computer code.
You can't get a bond or old-fashioned stock certificate in paper form even if you want one. But art and antiques—now there are two tangible, physical investments that also can grace your home. And if you have a good eye and a long enough holding period, you might actually make some real money.
A few lucky, inadvertent investors may discover a rare armoire in a grandparent's attic or buy a painting when they're young—just because they like it, finding out only years later that the artist got hot.
But what about true investing, as opposed to happenstance? Could you go about buying art or antiques the way you would invest in an exchange-traded fund or real-estate investment trust? Is there significant money to be made?
"Both art and antiques are great investments for people who have money they want to put aside long term," said Kevin Yardumian, a collector of 19th century art and partner with accounting and business advisory firm Gumbiner Savett.
These investments are, however, very illiquid, he cautioned. "You are not going to buy, and then sell, next week."
Despite the long holding periods, art investing is not exclusively for the rich, said Michael Moses, a retired New York University business professor and founder of Beautiful Asset Advisors.
"Our research has shown over the years that art is this wonderful asset class, in the sense that there's a painting for every purse," he said.
Moses added that "low-priced art tends to outperform high-priced art."
A person with a $500,000 investment portfolio might consider putting 10% to 20% into illiquid assets, according to Moses. But art and antiques should be only part of that 20%, he noted.
If an investor is going to spend more on the painting hanging over their couch than they did on the couch itself, "then they should do a little research," Moses said.
Moses is co-creator of the Mei Moses family of fine art indexes of art values, which are modeled after the well-known Standard & Poor's/Case-Shiller home price indices of home values.
The art indexes track the prices of individual works sold at auction more than once, for a true "apples to apples" comparison over time. The indexes show that art values rise at about the same rate as stocks.
"The returns of our World All Art Index the past 60 years are slightly below the returns of the S&P 500," Moses said.
So, why invest in art or antiques when putting money into an S&P 500 fund is so easy? There are several reasons, according to Moses and Yardumian.
As with stocks, an individual antique or work of art could perform far better than average. And the Mei Moses indexes show that art prices are, to use investing lingo, highly "non-correlated" to stock prices. So, when your stocks are down, your art might be up, helping to reduce volatility in your overall investment portfolio.
Finally, and most importantly, art and antiques investing can be an awful lot of fun. You might not get much day-to-day enjoyment out of your Dow ETF, but a painting on the wall can please every time you look at it. In addition, the hunt for promising works to invest in can be very exciting.
Much of this is true of antiques, as well, but there is no similar index of their values, according to Moses. Because most antiques sales are conducted through private dealers, he explained, it's too hard to find public sources of concentrated data for meaningful price comparisons over time.
As any viewer of TV's "Antiques Roadshow" knows, the value of antiques can rise over time, as specific craftsmen, styles or periods become popular.
But while an antique individual dresser or chest might soar in value, a virtually identical one might not, because someone refinished it or changed the hardware. Because each antique or work of art is unique, prices fluctuate wildly. This creates both opportunities and hazards for investors.
"Art, like real estate, is a heterogeneous good," Moses said. "Every object is different."
Yardumian concurred.
"You can get two people who really want something and they will pay an astronomical price," he said. "And then you get someone who really needs to unload something and there's only one buyer."
Both experts agreed that investors in antiques or art need to start with an appreciation of the objects, not a desperate need to make money.
People who become investors—actively seeking works for their potential returns—almost always start out as collectors simply buying works they admire.
"I'll give them the pros and cons," said Yardumian, describing his approach with clients interested in art. "I'll talk to them about the nature of investing in art, [which is] significantly different … than investing in real estate, stocks or bonds or mutual funds."
Art and antiques do not provide the steady income one might earn from stock dividends, bond coupons or rent on property, he noted. So money put into art and antiques is truly tied up.
"There also is no intrinsic value to a work of art," he added.
The paint, canvas and frame used, for instance, don't add to a painting's value. And you can't break an artwork or antique into its components for analysis, the way you can look at a public company's factories, fleets, cash flow and patents.
Collecting art or antiques also means shouldering costs for insurance, expert authentication, shipping and storage in proper conditions of heat, humidity and sunlight—expenses you don't incur with stocks and bonds.
And buying and selling artwork or antiques can entail commissions and markups that can range from 10% to 25% of the work's sales price, Yardumian said. All these expenses chew into returns.
Illiquidity makes art and antiques more akin to real estate than securities. It can easily take six months or more to get a fine painting or sculpture on the auction block, according to Moses.
And the pace of price gains is unpredictable.
"You have to have the stomach to just leave the money there," Yardumian said, pointing out that investors should not invest in art or antiques with funds needed for college expenses, retirement or any other purpose with a deadline.
"You would not put money into art that you need to maintain your lifestyle," he advised.
So, what's hot today?
With antiques, it's really impossible to generalize because the market is so fragmented. With art, post-World War II contemporary paintings and Chinese works have been doing well for some time, Moses said.
"New money tends to follow new art," Moses added. Chinese art is rising because newly wealthy Chinese collectors are repatriating works collected in the West over the past century.
If you want to invest in art, Yardumian advises first selecting an area to focus on.
"Find something that you're interested in. It doesn't have to be a lifelong passion," he said. Instead of "just buying a bunch of art, somebody might focus on 20th century modern masters," Yardumian said.
"Then, you should really find somebody who's an expert in that area and can put you in touch with people who can source that kind of art," he said.
And don't mortgage the house to pay for this. Until you're an expert yourself, limit the budget to money you can afford to lose.
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References
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