Collecting fine art used to be a luxury reserved for the extraordinarily rich and well connected. Today, however, collecting art is an investment strategy that, with a little interest and research, can prove to be both enjoyable and lucrative. Not long ago, an article in Forbes reported that, over a number of different time periods, art outperformed the S&P 500. Even in the months following September 11th, amid recession and war, art auction houses saw new sales records set for more than thirty artists. A study by New York University, which examined twenty seven recessions and four wars, concluded that art values tend to hold up well during periods of economic difficulty and that art indexes always outperform major stock indexes during times of war.
Peter Scott S. Sahlman, head of Sahlman Fine Art Consulting, has advocated that art be recognized for its potential as a balancing or stabilizing asset, in addition to its ability to provide aesthetic pleasures. Sahlman states, “Buying fine art can balance one’s securities, real estate, bond, and hedge fund holdings. When fine art is purchased by a shrewd buyer, it can stabilize the volatility of one’s entire portfolio and position an art collection for upside appreciation.”
Naturally, investors intrigued by these possibilities should also keep the old adage “buyer beware” in mind. Here are two important concerns to keep in mind when buying fine art:
. Anything that can be said about art as an investment applies only to genuine art and not to fakes or forgeries. Investors should ask their dealer or gallery for certificates of authenticity or to speak with the artist directly, if he or she is alive.
. The liquidity of art – or, the ability to convert it directly into cash – is often limited. However, many investors over the years would attest that such risks are manageable.
When buying art, there is one truth that above all others serves to make the risks worth taking: If you buy something because you love it or for its beauty or personal appeal, you can never really lose.