Inflation is the new economical challenge

We hardly turned the page on the Covid crisis a new challenge took its place worldwide. Last year we met the severe face of inflation and it will be with us in 2023. Prices were climbing through the roof in many areas. Thus money is losing its value. While for the macroeconomy some moderate inflation is believed to be good in combination with a balanced unemployment rate, once it becomes stagflation we are in trouble. If interested in the topic, you can check the Philips Curve Theory

How to fight inflation?

How can one fight the negative impacts of inflation? One way is to bring forward purchases, as the value of your cash will be destroyed over time. The other option is to wait with important investments if you believe the demand for the item will force prices to drop. Alternatively, you can invest in assets, which are believed to increase their value above the inflation rate. Now at 15-25% YoY inflation, it is not easy to find short-term solutions. You can also invest in yourself to find a better-paid job, and so improve the income part of your balance sheet. Last but not least you can stop buying unnecessary things to pay more for the rest, you need.

Is buying art important essential part of our lives?

It is not most probably for the majority of the people. Therefore, in economic crises, most people tend to stop investing in such areas as art. This theoretically shall lead to less demand and so to lower prices of the artworks. But this is not the case. The artwork’s value is a kind of complex matter. It has emotional, historical, and objective value. So it is assumed that specific paintings will keep their value and will increase it in crises while others will suffer. So maybe it is a good time to invest as when better times come prices of artworks, which dropped may rise again. Never forget to buy only if you personally like the picture, and you are ready to watch it in the long term as it is no fast and liquid financial asset.

Can art be a good hedge instrument against inflation?

The art market was hit and in one of its biggest recessions in 2020. In 2021 though the global art market recovered strongly and generated aggregate sales of $65.1 billion.

As art has become an important investment topic, researchers try to quantify its return on investment including the inflation rate factor. Masterworks’ internal research show, that the prices of art outpaced gold — a popular inflation hedge — from 1973-1981 while the inflation rate in the US was around 9% on a yearly average in that period.

Some market analysts report that since July 2022, the contemporary art markets have delivered an average 15% return against 8.9% for S&P 500 companies on the stock market.

In a recent UBS and Art Basel art market report, collectors shared that they view buying art as a way to diversify their investment portfolios.

So overall if cleverly invested in, fine art can be a good inflation hedge tool.

Be careful, in what you invest

If you are new to art collecting though you shall be careful with any investment strategies in the same way as when you buy stocks. The more you know about what you buy the better chances you have to be on the winner’s side oninhe long run.

At Masterworks art portfolios’ return on investment have been tracked over a longer period. There has been strong proof that certain art segments can be sufficient hedge instruments against inflation rates. You can buy art shares in so-called split investments and trade those in the same way as any other company’s share, but you will not own the artwork in your home.

Regardless of how we view art investments, we have to keep in mind that if we buy contemporary modern artists’ artwork and not shares we have good chance to support them to develop further. Therefore it is a social responsibility act in your investment. Take care what you choose and make sure you have an art advisor if you plan to take it as an investment act. While it is important to concentrate one’s acquisition strategy on artists with proven market value and career paths. sometimes following emerging authors can be rewarding. Check out some of the trends of the best-performing rare contemporary artists:

If you just would like to buy an artwork, but have no means, look at other options and take a replica or a y an artwork featuring the product.