WHY ART IS THE BEST INVESTMENT YOU'LL EVER MAKE ART: HOW TO PRESERVE WEALTH AND MAKE MONEY IN VOLATILE FINANCIAL TIMES - PART IV "The main contributor to both absolute total returns and to the variance of total returns was the asset allocation policy decision." ( Global Investing: The Professional's Guide to the World Capital Markets, Roger G. Ibbotson and Gary Brinson
The devolution of confidence in traditional investment alternatives, in concert with the elevation of the importance of design and aesthetic throughout the world, points to a renaissance in the value of art to a degree never before witnessed.
After all, the art auction market is fair and transparent with a degree of stability that many financial institutions, and even some AAA-rated U.S. government debt, can only dream about.
Even absent the conditions present in the market today, making the deliberate decision to remain in the stock market inherently implies acceptance of a degree of risk. In that case then the decision should be made to diversify with the inclusion into the portfolio of assets which have no or little correlation with that of the market, in order to minimize risk and maximize return potential.
As a real and tangible versus a monetary asset, art's low correlation with the stock and bond markets makes it an excellent diversification vehicle -- enabling reduction in overall portfolio risk and enhancement of overall risk-adjusted return.
A key study examining the returns of 82 large pension portfolios by Gary Brinson, Brian Singer, and Gilbert Beebower uncovered that over 91% of the variance of returns is attributable to the asset allocation policy decision, rather than specific stock or bond selection decisions. (Gary P. Brinson, Brian D. Singer, and Gilbert L. Beebower, "Determinants of Portfolio Performance II: An Update," Financial Analysis Journal, May/June 1991.)
Therefore, the research data argue persuasively that allocating a portion of all investment portfolios to art as an investment class is as imperative as the very decision to employ an investment policy. It shows that for an investor with the twin goals of preserving wealth and growing capital, with today's market conditions, history points to the capital preservation and return superiority of art.
Hence, it doesn't matter what genre of art is selected, what matters most is the policy decision for its inclusion. Why not apply the respected and proven paradigm of the investment world as it relates to financial assets, to the real, tangible asset that is Art?
It has been an incredible year for contemporary and modern art. Christie's and Sotheby's together posted record sales over $12 billion. Despite all the economic travails discussed in these posts, art has been one of the only asset classes that has continued to outperform and bring an important degree of diversification to owners' portfolios. If you consider the fact that the 10-year inflation-adjusted return of the benchmark S&P 500 has actually been negative, that real estate can no longer be considered an asset upon which to retire, and, finally, the inflation which will only continue to ravage real returns, the choice for art becomes clear.
Capucine Price http://www.CapucinesBoulevard.com Email: Support@CapucinesBoulevard.com August, 2008 http://www.capucinesboulevard.com/default.aspx?Login=2 http://blip.tv/search?q=capucinesboulevard&x=0&y=0 http://www.originalfineartgalleryonline.com/