Art, Car Collecting Requires the Right Touch

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November 14, 2016


These markets reflect the economy’s health, offer investments that can be enjoyed for years to come.


Shrinking interest rates and diminished returns have made the fine art and car collector markets increasingly popular investment alternatives for high-net-worth individuals.


But these acquisitions are more than just a decorative addition to your portfolio — they’re also indicators of economic health and can impact your investment strategy as a whole.


“There is a direct correlation between the art and car collector markets and overall economic growth,” says Jeff Kravetz, CFA, Regional Investment Director for The Private Client Reserve of U.S. Bank in Scottsdale, Arizona. “When investors do well, they spend more on their collections, but if there are risks in the capital markets, they tend to pull back.”


Because these are long-term investments, Kravetz advises buyers to consult with their financial advisors to assess value and determine what role the collectibles can play in estate planning.

 

“Many collectors look at these pieces as legacy assets that could be in their families for generations to come,” Kravetz says.

Assessing the Marketplace


While the big art masters and rare models of automobiles might be few and far between, they do play an important role in the investment landscape.


Last year, Pablo Picasso’s “Les femmes d’Alger (Version ‘O’)” sold for $179 million, making it one of the most expensive pieces of art ever auctioned. That same year, a 1961 Ferrari 250 GT SWB California Spider sold for $18.5 million. While these numbers are extreme, they exemplify the wealth changing hands in the world of fine art and collectible cars.

 

“Each sale creates a lot of media buzz, which leads to more people getting into the market,” Kravetz says.  

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November 14, 2016


That trend is evident in the classic car market, which saw sales increase 17 percent in 2015. But concerns about potential interest rate hikes and global liquidity indicate the market soon may shift and growth will slow. And the art market is already seeing a shift. According to The European Fine Arts Foundation (TEFAF ) 2016 Report, art sales in 2015 fell to $63.8 billion — a 6.4 percent decline from 2014.

 

“This was the first year that saw a decline since 2011, and [it] comes as the sectors of the fine art market that were at the forefront of the rapid expansion began to cool off,” according to the report. 

 

There are still pockets of strength, however. While other markets struggled, the U.S. market grew 4 percent last year and had a 43 percent share of total art sales, easily outpacing sales in the United Kingdom, the next biggest competitor, according to the TEFAF Report. 

 

Making a Selection

 

New investors should be mindful that these are illiquid assets not to be acquired on a whim. “It’s not like buying a stock that you can sell the next day if you decide you don’t like it,” Kravetz says. “[Fine art and cars] also cost money to store and insure, and if you want to get a return, you might need to hold it for a while.”

 

 

 

 

 

Fortunately, novice investors now have many more ways to educate themselves about these markets. Online auction sites provide new avenues to appraise and purchase art, and many auction houses now offer guarantees on higher-value items, ensuring owners get a fair price when they take these works to market. For buyers unsure of what constitutes quality, dealers or art advisors can help in the selection of items that reflect the buyers’ values and taste in a targeted price range.


“Quality stands the test of time in these markets,” Kravetz says.


And unlike stocks and bonds, investors can enjoy these acquisitions as part of a collection as they wait for their value to grow.


“So don’t buy something because it’s a great bargain. Buy it because it is something you and your family could love,” Kravetz says.