This article originally appeared in FinancialPipeline.com.
Willem de Kooning’s Interchange sold at auction for US$300 million in 2015, making it the most expensive sale of contemporary art in history. The abstract painting previously sold in 1989 for more than US$20 million, which was also a record high at the time.
With returns like this, it’s not surprising that more aficionados are acquiring art as an investment, and maybe they’re onto something.
Contemporary art (meaning art produced after 1945) has offered an annual return of 14 per cent over the past 25 years, compared with a 9.5-per-cent annual return from the S&P 500, according to a report from Citi Global.
While the seller of Interchange likely made a hefty sum from the sale, not all art is created equal, and it can be difficult to gauge what’s a good investment and what will drop in value over time.
Some assets are worth more, some less
Personally enjoyable alternative assets – such as fine wine, art and even comics books – have gained traction as good investments over the years. But collectors must carefully consider such factors as liquidity, insurance costs and storage. And don’t forget taxes.
Plus, you have to know what to look for, and it can be difficult to predict what will be of interest to consumers in years to come.
“The market is in a funny place right now because we have so many categories that are dying. That is largely due to just the way our generations are living now,” says Vancouver-based Cailin Broere, a consultant for the international auction house Bonhams.
Items made of silver or bronze, or Louis XIV-style furniture, may have fetched a handsome sum at auction a few decades ago, but today they are dying off as a market.
With a depressed market, however, there is opportunity, Broere says.
“That’s really where to invest, frankly. You can really get a lot of great deals within those markets because there’s just so much available and so few people are still buying,” she explains.
One market that Broere says is consistently hot is celebrity memorabilia. Bonhams recently auctioned off items from the estate of broadcaster Barbara Walters, including her engagement ring. The auction house has previously sold everything from photos to cars owned by the famous, including a 1964 Aston Martin DB5 formerly owned by Paul McCartney.
Comic books are on a tear
But despite the uncertainty in these alternative assets, people continue to dive in.
In 2021, the global comic book industry was valued at US$7.14 billion, and it’s expected to attain a compound annual growth rate of 10.5 per cent from 2022 to 2030, according to a market analysis report by Grandview Research.
The Deloitte 2023 Art and Finance report advised that the art and collectibles category “is well-positioned to reap the benefits of the coming global wealth transfer and a finance industry increasingly oriented to holistic wealth management.”
In fact, the report states that in 2022, ultra-high-net-worth individuals’ wealth associated with art and collectibles was estimated at US$2.174 trillion, which could grow to an estimated US$2.861 trillion in 2026 “due to the increased number of UHNWIs across the world and their increased allocation of wealth to art and collectibles.”
Passion projects
But Teresa Black Hughes, a financial advisor at RGF Wealth Management in Vancouver, says these types of investments should be done, first and foremost, for passion.
“The things we’re talking about are tangible. That means they’re going to take up space somewhere and that might require paying a storage fee,” says Black Hughes. “On top of that, it might mean that you need to pay insurance for them.”
Liquidity is also a consideration. “If you’re thinking about your retirement funds, you’re often thinking about something that’s going to generate cash flow and that’s going to be liquid,” says Black Hughes. “Any of these types of investments that we’re discussing from a fund perspective, I wouldn’t deem them to be liquid.”
While collectibles can definitely function as investments, Broere echoes the advice that it’s important to buy for passion. Although headlines about paintings and wine that sell at auction for high prices can lure in those who think they are going to make a big return on their collectible investment, she says this is a rarity and should be treated as such.
“I’m speaking quite generally, but with all of these markets you find in the lower, harder times, people do still stay in them, but they become more discerning about what they want, and they’re looking for really high-quality pieces for good prices,” says Broere.
“It’s very cyclical, honestly,” she adds. “Every market has its own landscape depending on what you’re speaking of.”
This article first appeared in Financial Pipeline, which provides financial information at all levels for consumers and investors.
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