A lot of investors seem to have a stigma against investing in fine art, and they should if they lack expertise in the subject. The fine art market is largely a market all its own, and if you don’t understand how it works, of course you aren’t going to see results. If you know the game and you understand art, however, it’s actually pretty easy to make money investing in art.
This goes for all investing: the more knowledgeable you are, the better your results. The thing is, your knowledge of the fine art market can actually get you comparatively greater returns than with other markets. Here are a few reasons why:
There is Less Chance Involved
Actively trading on the financial market is increasingly seen as a fools errand. There are simply too many factors at play for most active traders to be doing anything other than essentially playing a game of chance. This can, in part, explain why people are flocking to passive investment opportunities at incredible rates. But you’ll be waiting a lifetime to see worthwhile returns on those.
With fine art, however, very little guess work is involved. The reason being that the fine art market is largely sans regulation. The people “in the know” know what’s going on in the market in part because their influence actually creates what is going on in the market, for better or for worse. The good news for you is that, with the right connections and enough research, you can be in the know too.
It is this same sans regulation system that makes fine art investing profitable in another way:
Fine Art Investing is a Great Hedge Bet
Because of its lack of regulations, the fine art market shows almost no correlation with other financial markets. For this reason, it makes for a great hedge bet when the market is performing poorly. When all other financial markets start dropping, chances are they’ll have little impact on the value of your fine art.
There are times when the fine art market dips, to be sure, but the point is that it sells independently of other financial markets. This makes it a great diversification tool if you have other investments, giving you returns at times when your other investments may not be doing so well.
Aside from the psychological value of being able to hold your investment, there are some other real advantages to having a physical investment, particularly with art. Stocks and bonds are inanimate and their value is entirely dictated by the market. Gold is physical, but its value, too, is largely dictated by market forces. If we happened to find millions of pounds of gold (we could find it on a meteor, it’s not impossible you know), the increase of supply with no significant increase in demand would see the value of gold plummet.
Our culture’s love of art, however, will take a lot more than intermittent market forces to deteriorate. A remarkable work of art will almost always hold its own in terms of value. It will have peaks and valleys, but it will almost certainly make you money. The key is that you make the purchase based on research and inside knowledge of the market. Here are some tips to get you started with art investing.
Doesn’t it feel good to make well-informed decisions!