A recent article from The Art Newspaper reported on the apparent slowdown in the growth of the art market, pointing to lackluster results during the February London auctions. With global stock market declines and oil prices plummeting, it didn’t seem surprising to the author that so many pieces sold at or near bottom estimates, signaling a market that “lost its sizzle.”

Now I don’t want to argue with the conclusions of the author because what I got out of the article is further proof of the necessity to diversify among asset classes, especially for those investing in art. Unfortunately, art investors often forget the real truth behind these commonly held beliefs:

“Here today; gone tomorrow.” It’s a saying we have all heard, but don’t follow when it comes to our own investment decisions. People who deal in the art world should remember that it comes with inherent risks and that tastes are always fickle.

“You should only invest in things you know about.” This saying is credited to one of the most famous investors today, Warren Buffet. In many ways it’s true, but should also be taken in context. Too many artists and gallery owners fashion their entire investment style based on this saying by continually taking whatever earnings they have from their business and pumping it right back into the business or buying yet more artwork. By doing that, these individuals are just increasing their overall risk as all of their net worth is tied to just one asset class – Art.

“If you want to make/lose a lot of money quickly then invest in just one asset.” Unfortunately, this is a frequent risk taking strategy that many artists and gallery owners follow even if they don’t recognize that they are doing it. By finding other potential income streams or other asset classes individuals can build a rainy day fund when the change in the market comes – and it always comes. None of us are soothsayers when it comes to knowing when the next market downturn will be and which asset class will gain favor from investors. But we do know that by spreading the risk around, our clients can more safely address the challenges in their own businesses. Our goal is to help them find the right balance of risk and reward.

“Pay yourself first.” This is an issue with all types of investors and business owners, but for artists and gallerists it takes on larger meaning because art as an investment is so temperamental. Just like anyone who owns a business, individuals need to take some money out of the practice and find another place to invest it outside of their business and the art world.

To learn more about this topic, contact us. And check out our article on the Top Concerns Facing Art Gallery Owners Today.