Art and Wine Investing in the “Good Life”

Art Wine Collectible Investing Museum of Modern Art Jackson Pollock

Perhaps one of the strangest areas of investing I know is in collectibles.

While collectibles can include anything from antique furniture to smoking pipes (yes, I know a local pipe collector), mainstream collectible investing generally falls under two main categories: art and wine. Investing in both has become so popular that indexes now track the overall market for these collectibles.

One of the more interesting aspects of investing in this space is that the returns have been very impressive over the past decade, with both markets keeping pace or outperforming the S&P 500 index.

In 2000, the Liv-Ex Fine Wine index sat around 90. That index recently closed at 268.13. This is an annualized rate of return of 8.75 percent, making it one of the best-performing asset classes over this period. (See the chart at the bottom of this Web page. Credit: Trellis Fine Wine Investments LLC)

Similarly, the art market has done very well over the last decade.

A recent Wall Street Journal included a graphic displaying art investment performance since 2003 (View the graphic in this article). Notice how art is categorized by different styles and eras, with some performing better than others. The world all-art index has returned almost exactly what the S&P 500 has over this same period.

After looking into this a little more, I found that art and wine returns have been highly correlated with the number of billionaires on the planet. One of the best performers of the group has been the index of traditional Chinese works of art, exactly where many of the newest billionaires have been minted.

While wine and art have been slightly less correlated to the stock market than other asset classes, they have been highly sensitive to emerging market growth and wealth trends.  So a speculator or investor in collectibles must not only have a strong understanding of the asset itself (art or wine in this case), but also command a powerful understanding of emerging trends.

For most, this would make the risks associated with investing in these assets too high. These areas of investing offer a unique vehicle that can be less efficient than traditional markets, but for some, it may be an opportunity to turn a hobby into something that can make a little money on the side.

As a final note, these index prices do not include the costs of storage, maintaining, auction fees, forgery risk or the consultation of experts. It is likely the returns would be much more dismal and may even underperform other asset classes when total costs are included.

[Photo: JoMclure/Flickr]

 

This article was originally featured in the Bellingham Business Journal.