July 13, 2021
If there is one thing that the Covid-19 virus has inspired in the entire human race, it is the need, now more than ever before, to prepare for an uncertain future especially in terms of instituting structures for preserving business achievements, and sustainably accumulating wealth. Typically, depending on his risk appetite, the average investor should have a range of diverse assets in his portfolio and be constantly concerned with the bottom line. Visual art (art), provides a safe and relatively secure option for those looking for safety, convenience, and building reasonable capital appreciation over time. This has been the case since some form of art collection existed in the earliest civilizations with arrays of precious objects and artworks stored in temples, tombs, and sanctuaries. In like manner, palaces and treasury houses of kings and traditional rulers from early time, were filled with art collections, in ways which typified the extent of their prowess, dominion and affluence.
Notwithstanding the widely available variety of asset mix and risk appetites, the bottom-line remains the main aspiration of every potential investor or lover of artworks. In this article, we have analyzed the role of visual art in advancing the objectives of wealth creation, preservation and sustenance, in conjunction with other conventional wealth creation and preservation tools.
According to Warren Buffet, in one of his most revered investment warnings ever; “never lose money!” Wealth creation and preservation refers to the series of processes and mechanisms instituted by investors to build and sustain the value of their assets. It ensures that even if investors do not accumulate any new assets, they would not become worse off due to the volatility of the financial markets and economy in general for future generations. While traditional investment methods only cater for the bottom-line; being profitability, wealth preservation takes a more holistic and family-oriented approach, in catering for profitability, personal ideals, family values and legacy building for some generations, or hundreds of years.
Generally, wealth preservation often appears to be an unwritten goal of investment with its own set of tools and conscious planning. However, over the years, the visual art market has, through unconventional means, maintained observable stability across all periods, notwithstanding harsh and unfavorable economic climates. Informed investors are mostly aware that turbulent economies do not generally harm the visual art market. In other words, investors balance their portfolios with assets that hedge against inflation with investment in art, stocks and bonds.
As artwork is increasingly being purchased for building up wealth and as a reliable investment vehicle, investors are now less viewing artworks as only decorative objects, but more as tangible assets to accumulate, hold and to accrue substantial value over time. In the event of downward pressure on asset prices in the economy, these tangible assets are further viewed as stores of wealth useful for riding out economic turbulence. It therefore follows that the diversification of portfolios with visual art inclusion is an efficient way to build investment portfolio and mitigate risks, while ensuring the continued investment in an industry that has creditably performed historically across different global geographies.
Investors who appreciate the financial qualities in visual art but do not have the expertise to invest must be aware that art funds allow investors to reap the benefits of art as an alternative investment asset within their portfolio. Meanwhile, access to art and finance professionals who strategically invest in works that reflect positive trends in the market are now becoming commonplace within the art industry. When the economy slows down or declines, it is a relief to know that art experts are investing and managing your art investments as stores of wealth while allowing investors to yield returns on a booming asset class. The fertile nature of the art market has made the new generation of High-Net-Worth Individuals (HNWIs) to choose art, as an alternative asset class for the purpose of wealth creation and preservation.
While there is no one-size-fits-all formula for the right investment mix that will preserve value across generations, there is certainly a right investment mix per person and per season. Ultimately, a successful wealth preservation mechanism should be such which maximizes net expected returns regardless of the economic situations.
According to an online magazine, Zuu, when some Asian experts (comprising of CFOs of some of the biggest corporations), were asked ‘If you had $250,000, what should you do with it?’ 90% of them advocated for investment in stocks and bonds which is very much in line with the conventional investment culture of people across the world. While stocks offer an easily accessible (but usually volatile), highly regulated and market driven liquid asset, bonds offer a lower-risk (sometimes risk-free) alternative to the volatile nature of stocks while, at the same time, preserving its other characteristics. Consequently, when strategically done, they are a must-have in every portfolio aiming for long-term growth.