Alternative investments can provide impressive returns in the long run if you know what to look for
Antiques might not be the most conventional way to make money. But if you know what to look for, they can provide potentially impressive returns over the long term. Of late, many people consider alternative investments such as antiques, art, jewellery, etc as part of their portfolio. Let us look at what novice antique investors should keep in mind while investing.
Buy from recognised dealers
To avoid the possibility of buying fake antiques, it is always better to buy antiques from well-recognised dealers. Before buying, ensure that the dealer is a member of any of the top antique trade association.
Buy what you like the most
In order to successfully invest in antiques and art, you must have an interest in them. Even if this is a very basic admiration, that can be cultured into a connoisseurship. Developing a taste and love for decorative art and furniture begins by deciding what you like the most.
Art has existed for over 30,000 years. History provides a variety of objects to collect. If you are a kid at heart and love toys, then collect toys. If you love a good nap, collect chairs. The important thing is to enjoy what you decide to collect, because investing in antiques is not easy. You must do ample research before big purchases and invest hours in the hunt. If you are excited about expanding your collection, these hours will be painless and interesting to investigate before making actual investments.
Identify what is hot
Investing in antiques is not all that different from investing in commodities, real estate or other assets. Collectibles and art have fluctuating markets, like anything else. You should always collect things in high demand with low availability. How do you assess this? One way is to look at the recently-concluded auction websites under the heading ‘sold listings’; clicking on this option will give you a much better idea of the market.
Look for rare items
Rare items are usually the most valuable, so invest in antiques that are unusual. If you are planning to invest in antique jewellery, then look for the quirky and something with an edge, something that will be noticed, such as animals, an unusual shape or real craftsmanship.
Watch out for signs of restoration
Restorers use clever techniques to repair antiques, which can easily go unnoticed by the untrained eye. With furniture, there are some simple giveaways to look for, such as obvious use of machinery or tools that were not available when the piece was made. Watch out for signs of saw-blade marks. If you buy a piece with original colour and patina, it is much less likely to be restored as French polish and waxed finishes can hide restoration.
Insure your collection
You need to insure any antiques you buy, but premiums need not be expensive if you have only a few items. Keep in mind that many standard contents policies will require items to be specified if they are worth more than a certain amount. Make sure you keep an up-to-date valuation of the items insured. For high-value items, insurers may require evidence of a valuation before they offer cover in the first place.
Art indices such as World All Art Index, Mei Moses Family of Fine Art Index, etc track the prices of individual works sold at auction more than once, for a true ‘apples-to-apples’ comparison over a period time. The indices show that art values rise at about the same rate as stocks. However, if you track the returns of World All Art Index over the last 60 years, they are marginally lower than the returns of equity indices. Still, people prefer antiques as they are highly ‘non-correlated’ to the stock market and the hunt for promising work to invest can be very exciting.
A word of caution
Both art and antiques are great investments for investors who have money that they want to put aside for long-term. The catch is that these investments are generally very illiquid, with few buyers, so you might not be able to sell when you want at the price you want, and transaction costs can be steep. In other words, you cannot buy them, hold them for a week and then sell next week. In spite of the long holding periods, antique investing is not exclusively for the rich, which is a myth; research has shown over the years that antiques are a wonderful asset class, in the sense that there is a painting, art, etc for every purse. Antiques might not be the most conventional way to make money, provided that you know what to look for, then they can provide potentially impressive long-term returns.
To conclude, these assets do not produce any earnings or income and so price movements are based solely on demand and supply. This means there can be some big upward and downward price swings if certain types of antiques come in or out of favour.
The writer is associate professor of finance & accounting, IIM Shillong