As an investment advisor to high net worth individuals, I often encourage clients to consider diversifying their portfolios into alternative asset classes such as fine art and antiques. Antiques and fine art can add diversification, not only to a portfolio, but to one's life, with many benefits including the opportunity for appreciation.
Making antiques and fine art a component of a personal financial portfolio offers a three-prong value proposition.
1. Whether you are an experienced investor or novice collector, you can potentially realize financial returns through careful attention to quality, selection, and by seeking the advice of experts in the selection process. You need to have a long-term mindset when investing in art and antiques. Historically, the highest quality items of a genre can generate the most significant returns, assuming you keep them for at least five years or longer. While you won't have the liquidity of a stock or bond, the items have intrinsic value.
2. Collecting can develop and encourage a passion that adds a qualitative dimension to your life. Whether your interests are narrowly focused or range across multiple centuries and genres, unlike other investments, they can imbue a sense of achievement and pleasure in owning something rare and beautiful.
3. The journey of collecting becomes more exciting as you look forward to the experiences of traveling to shops and auctions, feeling the excitement of the hunt.
Experts in the field continually counsel collectors to buy the best they can afford at their price level. By focusing on the superior class of antiques and fine art, it is entirely reasonable to expect rates of return comparable to or exceeding the returns for traditional asset classes illustrated in the chart. With antiques and art, investors are buying a scarce resource that will only get scarcer over time.
While the day-to-day shifts of the stock market are not part of the art market, you should be prepared, for volatility and fluctuations in what is deemed desirable at any particular time. As with stocks and bonds, there is no crystal ball, but as Stephen Fletcher, executive vice president of Skinner Auctions, says, "Quality items that have integrity, provenance, beauty, and rarity are most resistant to changes in the market."
The correlation of returns in antiques and fine art relative to traditional asset classes is dramatically different; a very positive fact when building diversified portfolios. In other words, when the stock markets zig, antiques zag, and that's a wonderful attribute. Because antiques and fine art are less liquid than, say, bonds, stocks, real estate, and currencies, they offer a level of diversification that, over time, may provide not only financial growth to the current generation, but aesthetic value and financial appreciation that can be passed down within a family.