Repeat After Me....Tangible Assets!

After graduating college, I fondly remember defending my choice of major & subsequent career path relentlessly with the following two words "Tangible Assets". In 2009, a typical conversation when discussing my professional future would go something like this...

Someone: What did you study in school?

TLC: English Literature and Art History!

S1: Oh, do you want to be a teacher?

TLC: No, I'm really interested in art advisory and collection development from a financial standpoint.

S1: Oh???

TLC: Well, with the economic financial crisis people are really starting to look for a way to invest there money in alternative, tangible assets. They're a great way to diversify an investment portfolio and typically have a low correlation with the S&P 500...blah.blah.blah *20 minutes later*.

S1: That's great. *Aside with incredulity* This betch is Cray Cray!

Well Ladies & Gentleman, hold on to your Warhols!

The experts have weighed in... is art really a better bet than stocks? Michael Plummer and Jeff Rabin from Artvest Partners say 'Yes & No'

Fine arts professionals & high net worth individuals have known this for years! Anyone ever hear of the Rothschilds? One of those peasants is said to have said five to ten years ago that they always felt that a third of their assets should be in real estate, a third of their assets should be in art and a third in financial investments. Also, any good art dealer knows that their 401k is their own personal stockpile of rare to market works they come across in their dealings |no pun intended|.

Let's lay down the basics.

Fact: Art IS an asset class.

Fact: Tangible assets have always been something that the Asian community and the European community has sought. But since the instability of the financial markets in '08 there has been a tremendous increase in interest in true alternative assets and cash.

Fiction: The art market and the broader economic market are closely correlated.
The problem with correlation are many [read the article]. The art market is more directly correlated with wealth creation. The greater the wealth creation, the greater the participation in the art market.

Fact: Art is an illiquid asset. So this is a downer for sure. If the economy takes a turn for the worst you typically can't pay the bills with Picasso prints...people who don't have a lot of cash on hand and who are worried about liquidity shouldn't tie up too much capital into Art. Auctions are an obvious way to liquidate your art assets but if you put property up for auction during an economic slump you run the risk of the work selling for less than expected, if at all.  A work of Art buying in at auction can seriously tarnish the work for re-sale as auction records are now public through sites like Artnet.com...better to sell privately or not at all.

Fiction: There is no point investing in art if you aren't an ultra-high-net-worth individual. Art is a terrific diversification tool no matter what that size of your wealth portfolio is!

So the million-dollar-question...How do you start?

If I had three pieces of advice for the novice art collector it would be the following:

1_Start small:
Don't shoot into the art market guns a-blazing. Anytime someone is new at something there are bound to be mis-steps. When your financial security is involved don't jump into the deep end automatically, start out in the baby pool by investing in works that you can afford to take a loss on *not that you will if you follow ALL of my tips ;)

2_Buy what you like but buy smart:
There is definitely a place in the arts community for patrons who support emerging artists, who can afford the luxury of purchasing and supporting artists who may never gain notoriety but unless you have deep pockets that type of purchasing has no place in  your investment collection.  That being said, there is definitely a way to purchase artwork you love that is still a sound financial investment. Art is meant to be seen, enjoyed, discussed, ect what have you, so buy something that appeals to you, as long as its a sound investment.

3_Ask A Professional:
If you want to start purchasing art as a means to diversify your assets you should enlist the help of someone who is familiar with the art market.  Banks & auction houses have professional arts advisors on staff for this reason. Even smaller galleries and specialized art investment firms are available to help you start your own investment collection. Sit down and discuss with them your budget, taste and expectations and you'll be a collector in no time.

Art can be not only be a viable way to help diversify portfolios, but if properly managed has the potential to outperform equities, bonds and real estate holdings.