3 reasons buying art as an investment can diversify your wealth

03 August 2017|investment |James Nicholls

3 reasons buying art as an investment can diversify your wealth

2016 was an interesting year for the financial market. With the US election, Brexit in the UK and political instability around the world, it wasn’t a great time for investments. As a result, there was a significant upward trend of individuals pursuing higher returns in alternative investment markets, in an attempt to escape a turbulent fiscal and political environment.

Happily, investors are now sighing with relief as 2017 looks to be shaping up as a far better year. However, many are sticking to alternative investments, after seeing some of the highest gains they’ve experienced in years. The perceived risk well and truly paid off, and art as an investment is now fast becoming more popular than ever.

"Click

Alternatives going mainstream

Back in 2012, McKinsey noted that the financial crisis seemed to spark a growing interest in alternative investments. Globally, alternative assets under management more than doubled between 2005 and 2011, far outstripping the growth rate of traditional asset classes.

Five years ago, alternative investments began to go mainstream. Here’s a few reasons why so many now favour art as an investment…

Diversification

McKinsey commented on a change in investor behaviour after the recession hit. Individuals were chopping up funds and investing across multiple assets. After seeing traditionally stable financial markets suffer, no one wanted to put all their nest eggs in one basket. Some people looked to art as an investment asset that could diversify their existing portfolio.

In 2017, today’s retirees still have the global financial crisis of 2008 at the back of their minds. On top of this, political and economic volatility have led to traditionally stable investments such as oil and renewable energy suffer more than once. It’s clear that investors can never be too careful – so why not branch out and diversify in art?

Protection

Increasing globalisation has brought the world closer together in many ways, but this isn’t always a positive. Investors today need some assets which are truly uncorrelated with interest rates and the stock market, in order to protect their portfolio from a range of risks.

“These days, when Greece sneezes, markets around the world catch a cold,” explains Madelaine D’Angelo, Founder & CEO of online investment platform Arthena.

However, collectables such as classic cars, stamps, antiques and art are fairly resilient when it comes to keeping their value. These assets don’t correlate as closely with the economy as many commodities, such as oil.

As a result, investors looking for real protection from market swings are embracing art as an investment, as the alternative asset isn’t so closely aligned to global financial markets.

"Click

Temptation

It’s not just fear that creates change in investment trends, however. Shrinking returns from established financial institutions have led many investors to look more seriously at alternative asset classes.

Few bank accounts or ISAs still offer a tempting interest rate. Many investors now face low yields, or even risk making a loss, if interest rates continue to dip. Stocks and bonds don’t cut it anymore either if you’re looking to grow your money. Investors are looking for new ways to make a real profit from their wealth.

Changing demographics in the UK has also led to a growing number of ambitious investors who are keen to boost their savings as they approach retirement. These individuals are looking for protection from financial turbulence, and a rewarding way to invest their nest eggs.

How to buy art as an investment

Not every piece of art will increase in value in the future. Investors must consider an artist’s career so far, future potential, industry reputation, and much more.

Here at Maddox Gallery, our Sotheby’s-trained art investment consultants offer expert advice to our clients, educating them on the contemporary art investment market. Pay us a visit and discover more for yourself.

If you want to learn more about investing in contemporary art, take a look at ‘The Six Key Factors to Consider When Making an Art Investment.’ To find out more about any of our represented artists, please contact Maddox Gallery. Our Sotheby’s-trained art consultants will be happy to provide expert advice.

Written by James Nicholls, Managing Director and Curator, Maddox Gallery.

Art Investment Brochure