High-net-worth individuals and institutions are increasingly viewing art as a resilient store of value
Investing in contemporary art is a strategic hedge against stock market volatility, particularly in the aftermath of the recent global stock market downturn. On Monday, 5 August, fears about the state of the US economy sent share prices sliding around the world. Concerns of a US recession gripped global markets and triggered a share market rout, prompting investors across Asia, Europe, and North America to unwind their positions simultaneously.
At the end of the trading day in New York, the Dow Jones index, which features America’s 30 biggest listed companies, was down 2.6%, paring its losses, while the tech-heavy Nasdaq was 3.4% lower, and the S&P 500 was down 3%. In Europe, the CAC-40 in Paris trimmed earlier losses to end 1.4% lower, while Frankfurt’s DAX and the UK’s FTSE 100 lost about 2% each.
A tangible asset that can diversify an investment portfolio
Unlike traditional financial markets, the value of contemporary art is less susceptible to economic fluctuations and is often appreciated due to its cultural significance, rarity, and intrinsic aesthetic appeal. With the demand for unique and impactful works remaining strong, contemporary art provides a tangible asset that can diversify an investment portfolio, offering stability and the potential for substantial returns even during periods of market instability.
Furthermore, high-net-worth individuals and institutions are increasingly viewing art as a resilient store of value, further driving its attractiveness as a safe haven amidst financial turmoil. Art investment has long been seen as a privilege reserved for the elite. However, the art investment landscape has evolved significantly over the years. Today, art is valued for its aesthetic appeal and recognised as a strategic financial asset.
Here’s why art is considered a good investment and an effective hedge against economic uncertainties:
1. Tangible Asset with Intrinsic Value
Art is a tangible asset that holds intrinsic value. Art offers financial returns and aesthetic pleasure, unlike stocks or bonds, which are financial instruments. This dual nature makes art an appealing investment for those who appreciate the cultural and emotional value of owning a piece of history or a masterpiece by a renowned artist.
2. Diversification of Investment Portfolio
Art is a good investment because it diversifies an investment portfolio. Traditional investments such as stocks, bonds, and real estate can be volatile and susceptible to market fluctuations. Art, on the other hand, often behaves independently of these markets. This low correlation with traditional asset classes helps spread risk and potentially stabilise returns during economic downturns.
3. Appreciation Over Time
Art has a history of appreciating value over time. High-quality works by established artists have consistently shown substantial appreciation rates. For instance, the art market has experienced significant growth over the past few decades, with some pieces fetching record-breaking prices at auctions. While not all art will yield high returns, carefully selected pieces can offer impressive financial gains.
4. Hedge Against Inflation
Art can serve as an effective hedge against inflation. When inflation rises, the value of money diminishes, reducing the purchasing power of cash holdings. Tangible assets like art often retain or increase their value during inflationary periods. Investors seeking to preserve their wealth might find art an attractive option to safeguard their assets from the eroding effects of inflation.
5. Cultural and Social Capital
Investing in art can also enhance cultural and social capital. Owning art can provide social prestige and a sense of belonging to an exclusive community of collectors and connoisseurs. This social capital can open doors to networking opportunities, exclusive events, and personal satisfaction that goes beyond monetary gains.
6. Growing Accessibility and Market Transparency
The art market has become more accessible and transparent in recent years, thanks to technological advancements and the rise of online platforms. These platforms provide comprehensive data on art sales, artist profiles, and market trends, enabling investors to make informed decisions. Additionally, fractional ownership and art investment funds have lowered the entry barrier, allowing more people to participate in the art market.
7. Preservation of Wealth Across Generations
Art can preserve wealth across generations. Unlike other assets that may depreciate or become obsolete over time, well-maintained artworks can be passed down as heirlooms, retaining or increasing their value. This aspect of art investment makes it an attractive option for long-term wealth preservation and legacy planning.
In conclusion, while art investment requires careful consideration, expertise, and due diligence, its potential benefits make it a compelling addition to a diversified investment portfolio. Combining aesthetic enjoyment, financial returns, inflation hedging, and social prestige positions art as a unique and valuable asset. As the art market continues to evolve and democratise, more investors are recognising the potential of art as a wise investment and a reliable hedge against economic uncertainties.
Ready to explore the possibilities of contemporary art investment?
Investing in contemporary art is a journey, and we’re here to guide you every step of the way. Let’s embark on this adventure together. To discuss how Zurani Advisory can assist you, please call +971 58 593 5523, email contact@zurani.com, or visit our website: www.zurani.com.
THIS ARTICLE DOES NOT CONSTITUTE FINANCIAL, TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.
