Almost everybody needs to save for something. It could be saving for a college education, an exotic tropical vacation or a relaxing, well-deserved retirement. But what is savings and investment at its core? In my opinion, when people save or invest they are really trying to transmit the surplus value of their labor into the future without loss. This is a fancy way of saying that everybody wants to preserve the purchasing power of their savings.
Unfortunately, this is easier said than done. According to the U.S. Bureau of Labor Statistics’ Consumer Price Index (CPI), the U.S. dollar has lost 86.5% of its purchasing power to inflation over the 50 year period from 1967 to 2017. And this shocking fact assumes that you trust the hedonic adjustments that are regularly made to the CPI by government bureaucrats. These black box “improvements” invariably serve to lower the stated rate of inflation, thus making the long term loss of U.S. dollar purchasing power seems smaller than it would be otherwise.
Saving and investing is rendered even more difficult by the asymmetrical, activist policies of the U.S. Federal Reserve. The Fed has mercilessly suppressed short-term interest rates, resulting in serial asset bubbles in bonds, stocks and real estate. And bubble-addled markets rarely make good investments. In short, there are precious few asset classes where the average saver can hope to safely invest for the future.
But there are a handful of exceptions. Fine art and antiques are the overlooked heroes of the current investment age. They provide a safe harbor from the coming global financial storm of unprecedented proportions. In effect, fine art represents a secure claim on future economic output.
Fine art and antiques are among the oldest investments known to man, holding a special place alongside the tangible asset classes of raw land and precious metals. Ancient Greek statues were widely coveted by the Roman aristocracy. When Greek originals could not be procured, Roman elites did not hesitate to decorate their sumptuous villas with skillful copies. The Florentine Medici dynasty was a well-known patron of the arts during the Italian Renaissance, even funding the famous artist Michelangelo. Napoleon looted beautiful works of art from every corner of Europe, including the famous bronze horses of St. Mark from Venice.
The reason why fine art and antiques have always been so desirable is because of deep-seated human psychology. According to Maslow’s hierarchy of needs, once people fulfill their lower physical needs, they then attempt to satisfy higher psychological desires like prestige and self-esteem. Becoming a connoisseur of fine art is a natural way to accomplish this and history certainly agrees with this assertion. The wealthy and social elite throughout history have always felt compelled to collect and display exquisite, thought-provoking art.
This strong demand from the well-off in society makes fine art an asset class in its own right. And this fact has important implications for saving and investing. When we save money or invest, we are really trying to stake a claim on future GDP. Gross domestic product, or GDP, is the value of all the goods and services created in a country in a given year. From a conceptual standpoint, fine art, along with the other asset classes, has a strong claim on GDP or economic output.
In other words, stocks, bonds, cash and real estate all “own” a share of GDP and can be exchanged into that share at any point in the future. The same thing applies to the asset class of art and antiques. It can be exchanged for its “fair share” of GDP in one year, ten years or even a century from today. If purchased at a fair price, high quality art and antiques have a tendency to appreciate in line with the growth in GDP, thus maintaining purchasing power. Fine art is a nearly perfect savings vehicle – a perpetual, tangible claim on future global economic activity.
However, the relative shares of asset classes can – and do – vary in relation to one another. Therefore, some asset classes can be overvalued at the same time that others are undervalued. This is the case right now. Equities, debt and real estate have experienced successive bubbles for the better part of two decades, rendering them hopelessly expensive at the moment.
Luckily, fine art and antiques are currently among the world’s most inexpensive, under-owned asset classes. This is a boon to savvy tangible asset investors and knowledgeable antique collectors. It doesn’t matter whether you’re interested in a playful 18th century Japanese toad netsuke carving from the time of the samurai or a set of elegant French vermeil silver teaspoons from the Belle Époque era. Fine art and antiques give you a convenient way to safely invest for a brighter future.
