is art the right investment for you?

01.20.2009

In 2008 many of us have experienced a severe drop in the value of our assets and investments. The real estate market has declined substantially since its peak in the third quarter of 2006. Foreclosures have skyrocketed almost everywhere which has dramatically lowered values to levels comparable to 2003 or before. The Dow Industrial index declined 40% from its peak of October 9, 2007. 45% of the equity value of some of the largest companies in the world has simply “up and vanished” in 15 months. Even esteemed institutions such as Harvard and Princeton have lost billions of dollars in their endowments. The US Treasury, Federal Reserve Bank and Federal Government have concocted several new rescue plans to help the economy. In the process of trying to achieve their goal they have created trillions (not billions) of dollars to reverse the economic downturn. They have succeeded in avoiding a deflationary cycle, however the virtual doubling of the money supply will undoubtedly create an inflationary cycle. The dollar and other paper currencies faced with similar problems will be worth less and less until consumer confidence begins to reverse the US economic direction and money supply and budget deficits are brought under control. So where do we go from here? How do we protect our capital base from inflation with safe investments that will appreciate in value? Can we trust asset managers and experts to provide a return of our capital as well as a return on our capital? While there are different investment vehicles that will protect capital and create wealth, hard tangible assets will be the best performers. One of the best hedges against inflation is the buying and collecting of art from well established, living artists. The demand for high quality art from unique and well known artists always exists in both good and bad economic cycles. Art also has an aesthetic and emotional value that provides intangible returns. Art can be a multigenerational investment. The passion of owning valuable pieces can be passed on to heirs for their enjoyment and wealth creation. The preference of buying art from living artists is due to lower acquisition costs which usually generate larger percentage returns. Also the lower costs allow greater diversification in the collection. And don’t forget to take a chance on new and upcoming artists. Sometimes the most meaningful purchase is from a new talent that has a special piece that speaks to you. Many, many changes are coming and when the ultimate results become clear, high levels of inflation, which is currently in hibernation, will surface. This will devalue hard earned capital unless proper investments to protect it are made. -Daniel Wolfus, Private Equity Investor

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