The new year may have brought with it the urge to examine your financial situation. You probably do not need any reminding you that interest rates are near zero for “safe” investments like CDs and savings accounts. Unfortunately, the situation is not much better with dividends. While greater returns can be found with stocks and mutual funds, they are volatile in our ever-unpredictable world.
Financial experts recommend diversification to help bump returns and mitigate market risks. Many suggest putting a portion of one’s portfolio into tangible assets like real estate. In contrast, others extoll exotic investments like cryptocurrency and even rare liquor bottles.
Throughout much of recorded history, people of means acquired Objets d’ art, believing their collections represented—and would perpetuate—their wealth. Given the state of intangible investment these days, investors are again considering high-grade art and antiques for their portfolios. Yet, is that a good idea? Before putting a significant portion of your nest egg into collectibles, there are pros and cons to weigh. Read on to learn about the realities.
Returns from Art and Antiques
Beginning in the 1970’s retirement plans began shifting from pensions to personal contribution tools like IRAs and 401Ks. With that came over-reliance on securities like stocks and bonds and being subject to the whims of the market. While Wall Street has performed very well lately, many financial experts, like asset manager Jim Rogers believe a huge bear market is imminent. Any significant correction could prove dire for many retirement accounts. Such predictions are fueling interest in tangible assets like real estate, precious metals, and even collectibles.
Like many of his contemporaries, Rogers has long been a fan of precious metals like silver because they provide a good hedge against inflation and market corrections. Roberts is also bullish on contemporary artwork. Turning to data in the Global Art Market by Citigroup, he pointed out, “art has outperformed the S&P 500 by 174% over the past 25 years.”
Like real estate, high-grade collectibles are becoming popular for diversification because they are physical assets and not subject to stock market fluctuation. A November 2021 article in Moneywise alludes to art’s stability, “Not only has contemporary art outperformed stocks nearly threefold, it has also experienced way less frequent loss than the stock market. From 1995 to 2020, contemporary art has seen losses over three-year investment horizons only 4% of the time.”
The Rise of Art Investing Indexes
Increased popularity in investment-grade art and antiques has spawned several indexes to help investors track their performance.
Among the first was the Mei Moses Index, developed at New York University in 2002 and subsequently acquired by Sotheby’s in 2016. The Mei Moses Index examines repeat sales of artworks over time, measuring changes in value. It uses a methodology similar to the Case-Shiller National Home Price Index for real estate. The Mei Moses draws from a database of approximately 60,000 repeat sales spanning from 1810 to today, which helps examine the performance of art categories and spot trends. Calculations control for specifics like variety, artist, quality/condition, and size of the work.
Another tool is the Artprice100®, which, akin to indexes like the S&P 500, attempts to identify 100 “blue chip” artists and their works. The index focuses on core artists like Picasso, Warhol, and Monet, and filters out speculation and short-lived hype. Echoing Citigroup’s data, Artprice’s index points to better than a 30% increase in blue-chip art in the last two decades.
Enter Trade Platform Masterworks
Investing in blue-chip art and antiques might seem appealing. Still, until recently, rank-and-file investors were deterred by the high costs and complex processes involved. Enter Masterworks, which wants to “democratize” investing in iconic art.
Masterworks believes that collectible art represents a bigger market than real estate. As of 2021, the firm had amassed more than $250 million of what they, too, refer to as “blue-chip art.” Using proprietary data, masterworks buyers locate artists and works with solid potential. They acquire pieces at good prices then make the art available to investors.
Like a mutual fund, buyers can acquire SEC-qualified shares in artworks through the Masterworks platform. The company even created a first-of-its-kind secondary market, where, like trading stocks on Schwab or eTrade, clients can buy or sell shares directly with other traders.
The Reality of Antiques and Art Investing: All That Glitters is Not Gold
While tools like Masterworks and the Artprice100® help individual investors competently participate in an arena once reserved for the wealthy, investing in investment-grade collectibles is not for an amateur. Here are some factors you should consider:
Liquidity
Like real estate, art and antiques are not liquid investments. Traditional securities can often be sold within seconds. With collectibles, selling times can be lengthy. There is always the risk of failing to secure an interested party or one willing to pay more than you invested.
Marketing Realities
Apart from Masterworks, selling antiques and art is an active process involving shows, auctions, or some other form of “arms-length” transaction. Whether advertising a piece in a publication or listing it with an auctioneer, selling collectibles can involve complex marketing. Then, there are packing, shipping, and sometimes even rescinded transactions to contend with after the sale.
Purchase & Sales Fees
There are commissions and fees both when buying and selling high-end collectibles. Those costs diminish overall returns. While traditional securities can now be traded for $0 commission and real estate commissions might be as little as 3%, collectibles transactions are much costlier. Buyer’s premiums at auction commonly run 15%-25%. Auctioneers’ selling commissions may reach 10%-15%, and selling fees on popular online platforms like eBay can exceed 15%.
Overhead
Unlike “paper” investments, physical assets have holding costs. Collectibles owners often incur storage, insurance, and even maintenance or repair costs.
Shifting Tastes
While iconic art will probably always be fashionable, not every item or category will remain popular.
Antique dealers can attest to how nearly impossible it is today to sell “brown furniture” even though three decades ago, prices had skyrocketed. In addition, interest in the popular mid-century category is feeling downward pressure as reproductions hit the market and taste shifts towards the 1980s and 90s.
Additionally, Generation-Z and millennials, which collectively represent the largest cohort of buyers, are more minimalist than previous generations. For those groups, collecting itself holds less appeal. As a result, interest in what were once bedrock antiques categories—like fine china, crystal, and silver settings—has virtually evaporated.
Still, most high-grade antiques and art remain “hot” commodities. That attention will continue to drive prices upward. Nobody wants to miss an opportunity. Yet, there is no guarantee that the upward trajectory will continue. Like the meteoric rise in real estate before the collapse in 2007, there is no way to determine if or when the market for high-end collectibles might go from investment to “bubble.” In the end, perhaps the best return from antiques and art is still their enjoyment.
William Flood is a mid-century antiques dealer and writer specializing in twentieth-century commercial culture. He writes for numerous antique and collectibles publications on subjects like roadside architecture, 1950s modernism, and even vintage tiki culture. He is the author of two Ohio local history guides. When not writing, you might find him enjoying a small-town Main Street or taking the great American road trip.
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