As 2017 departs and 2018 arrives, it makes sense for those interested in alternative assets to reassess their financial situation and make these smart moves.  So here is the Antique Sage’s 2018 to do list for alternative asset investors:

Rebalance your portfolio from conventional assets to alternative assets

The paper asset markets have had a tremendous bull market run over the past 9 years.  So there is every probability that the stocks, bonds and mutual funds in your retirement or brokerage account are worth far more than they were just a few short years ago.

So now is the perfect time for you to take a little of your winnings off the table.  Sell some of your stocks and bonds and reallocate the proceeds into an asset class that hasn’t performed as well.  Of course, there are very few asset classes that haven’t performed well recently.

But there is one asset class that was completely overlooked in 2017: bullion, fine art and antiques have lagged substantially behind.  In my opinion, this makes them perfect for alternative asset investors in 2018.  Their prices are low and their valuations are reasonable.  A move from traditional paper assets like stocks and bonds into fine art and antiques would simultaneously de-risk your portfolio while improving future return potential.

Don’t buy into the crypto-currency hype

Alternative asset investors may be sorely tempting to throw their money at those alternative asset niches that have done the best in 2017.  In this case, I’m referring to the crypto-currency complex.

Most crypto-currencies, including such illustrious participants as Bitcoin, Ethereum, Litecoin and Ripple, absolutely skyrocketed during 2017.  Bitcoin went from about $1,000 to $14,300 for an astounding 1,330% one year return.  However, Bitcoin was far from the best crypto-currency performer of 2017.  Ethereum rose by 7,470%, Litecoin increased by 5,775% and Ripple soared by an unbelievable 33,186%.

Now, I like the idea of crypto-currencies.  The world very much needs a form of money that is beyond the self-serving manipulations of corrupt central banks.  But Bitcoin, along with nearly every other crypto-currency currently in existence, has some pretty glaring flaws.

In short, it might be tempting for alternative asset investors to shift the entirety of their alternative asset allocation into crypto-currencies, especially in light of their recent outperformance.  But they should resist that urge.  Investment returns come in cycles.  Assets that perform well for an extended period of time inevitably underperform at some point in the future – usually when you can least afford it.

Buy yourself a wonderful piece of fine art

Life always seems to move faster than we would like it to.  There are always appointments to make, chores to finish and bills to pay.  But it is vitally important to step back and appreciate the world every once in a while.

A perfect way to do this is to buy a piece of beautiful art.  It could be a colorful print to display over your couch, or an avant-garde sculpture for your coffee table.  It could even be a fine piece of antique jewelry for you (or your spouse).  Almost anything that has been crafted by human hands with the primary intention of being aesthetically pleasing can qualify as art.

The only rule is that it should be a piece of art that appeals to you.  This might seem self-evident, but a surprising number of alternative asset investors get caught up in the idea of appreciation potential above all else.

Don’t fall into this trap.  Instead, buy a stunning piece of art just because it speaks to you.  If you are lucky, that artwork will not only give you countless hours of viewing enjoyment, but also a reasonable investment return as well.

Make sure you have enough cash or other short-term investments on hand

With the stellar run that both the stock and bond markets have experienced over the last several years, it is easy to believe that the good times will last forever.  And it is true that securities markets may continue to rise at a rapid clip for a while to come.  But the fortunes of the stock market can change with shocking abruptness.

Therefore, it is wise to reassess your financial position and make sure that you have sufficient cash on hand to weather an unexpected market disruption.  It is even more imperative for alternative asset investors – those who collect notoriously illiquid assets like fine art and antiques – to have a healthy cash buffer.

Having a large pile of cash or other short-term investments will help you fight the urge to sell less liquid investments at inopportune times.  This might not seem terribly important right now, when every asset known to man is rising without pause.  But having sufficient cash holdings will become vital if there is ever a market downturn.  It is good to be able to sleep soundly at night without having to worry about financial Armageddon.

Read on as the Antique Sage debunks the top 6 art investment myths!  So if you are interested in investing in fine art and antiques, but are confused by all the misinformation, untruths and outright lies circulating on the topic, you’ve come to the right place.

1) Only millionaires can afford to invest in fine art and antiques

The idea that art is only for the wealthy is one of the ugliest, most persistent art investment myths out there.  It has been repeated so many times, by so many different people, that it has simply been accepted as being true without much thought.  This is understandable considering that films, books, magazines and newspaper have, intentionally or unintentionally, equated art investing with the ultra-rich.

And yet it is profoundly untrue, provided we are willing to entertain an open mind concerning what constitutes art.  Vintage mechanical wristwatches, antique sterling silverware, ancient coins and vintage fountain pens are all examples of antiques that are both moderately priced and investment-oriented.  In fact, I believe the greatest investment potential in the art market exists in the under $2,500 segment, with some investment grade artwork available for as little as $100.

2) Only paintings and full-sized sculptures count as art

This is one of those art investment myths born out of ignorance.  We are surrounded by a culture that lionizes the major arts – primarily painting and monumental sculpture – to the exclusion of all other art.  The rest of the visual arts, collectively known as the minor arts, have traditionally been treated as the red-headed step-children of the art world.  They are, at best, tolerated, but usually ignored.  This is a pity, because the minor arts boast some of the best workmanship and most alluring designs from hundreds of different cultures and time periods.  Yet, they receive almost no recognition in the art collecting community.

For example, traditional Japanese lacquerware is one of the most demanding, time-intensive crafts known to man.  It can take months for a skilled craftsman with decades of experience to prepare and apply the 25, 30 or even 40 layers of lacquer necessary to finish a single, high quality piece.  Yet, many Westerners have no idea fine lacquerware even exists, much less the skill and effort needed to create even a simple example.

So while paintings and large sculptures certainly qualify as art, I think that they are among the least interesting parts of today’s art market.  The minor arts, with their combination of reasonable pricing and phenomenal workmanship, are really the up and coming market segment.

3) Art is a poor investment compared to traditional assets like stocks and bonds

One of the today’s most popular art investment myths is that the traditional asset classes have decisively outperformed art since the mid 20th century.  According to this argument, broad stock market indices have tended to return around 10% per annum, give or take, over long periods of time.  But this assumes that an index investor immediately and unfailingly reinvests those dividends back into stocks – something that wasn’t even possible before the arrival of the first index funds in the mid 1970s.

In reality, the growth in nominal GDP in a national economy (or global economy, if you are investing overseas as well) tends to cap long-term returns for all asset classes in that economy.  We can prove this by looking at some annualized, long-term, U.S. asset class returns from 1947 through 2016:

• U.S. Treasury Bills – 4.10%
• U.S. Treasury Bonds – 5.36%
• U.S. Nominal GDP Growth – 6.43%
• S&P 500 (without dividends) – 7.38%
• S&P 500 (with dividends) – 11.11%

Notice how all the returns generally cluster around the nominal long-term annual growth in the economy?  That is because the growth in the economy is how these returns are “paid” or transformed into the real purchasing power of goods and services.  The only true outlier, the S&P 500 with dividends reinvested, is a theoretical number that almost nobody actually got, because almost nobody systematically reinvested dividends between 1947 and 2016.

Now that passive ETFs and index mutual funds are everywhere, it is a pretty good bet that stock returns with dividends reinvested will tend to be no higher than nominal GDP growth over the long-term.  It is a bit like Heisenberg’s Uncertainty Principle applied to finance.  As long nobody knows about an investment trick, it works great.  Once everybody is aware of its existence, it doesn’t work anymore.

Right now, fine art and antiques are the investment trick that nobody knows about.  But these alternative assets have just as strong a claim to future GDP as stocks or bonds.  As an added bonus, because so few people have invested in art to date, there will almost certainly be a period of elevated returns as art prices “catch up” to fair value.

4) Only artworks from famous artists are investable

Another one of those enduring art investment myths is the unyielding belief that it is the artist that makes the artwork.  We have all read or heard stories of paintings by Vincent Van Gogh, Pablo Picasso, Gustav Klimt or some other renowned artist selling for eye-popping, 8-figure prices.  It is easy to assume that these works are famous because they were made by these influential artists.  And there is a certain element of truth to this assertion; a famous maker undoubtedly boosts the value of a work of art.

But, like most art investment myths, this fallacy overlooks a very important fact.  Artists become famous because their art is widely recognized as having great merit.  In the end, it is the visual impact of the art that is important, not who created it.  To put it another way, I would much rather buy a great work by a completely unknown artist, than a poor work by a famous artist.  And make no mistake; there are some world famous artists who have produced some really bad art.

This rule of buying the individual artwork rather than the artist goes double if you hope to make money by investing in art.  The quality of the work you are considering purchasing must always be your primary investment criteria.

5) Fine art and antiques are too illiquid to be good investments

One of the things that everybody loves about traditional assets, like stocks and bonds, is that they are tremendously liquid.  You can generally log into your online brokerage account and execute a trade in just a few minutes (or even seconds).  In contrast, art is not nearly as easy to buy or sell for fair value.  You usually have to consign a piece to an auction house, or sell via eBay or another online outlet.  And because the market is so thin, there is no guarantee that you will walk away with the amount you originally hoped to realize.

And yet, the illiquidity of the art market isn’t all bad.  Illiquidity restrains speculation and rapid turnover, meaning that the price you pay when investing in art is more likely to be a fair price, rather than an over-inflated, bubble price.  The U.S. stock market, on the other hand, has been plagued by recurring bubbles during the past 20 years which have whip-sawed weary investors with roller-coaster performance.  One of the reasons for these serial bubbles is undoubtedly the ease of trading in the stock market, which invites frenzied speculation.

6) Art investing is for insiders who can flip works for a quick profit

This is one of those insidious art investment myths – the idea that only “insiders”, like art gallery owners, art critics and obsessive connoisseurs, can really profit from art.  The second part of this misconception is that these insiders scour hidden, back-channel sources for great art before anyone else even knows it’s even there, and then turn around and almost immediately resell the works for big profits.  The sky-high bubble prices of contemporary artwork just a few years ago certainly adds to this perception.

But the reality is that most money in art is made by dedicated, but otherwise average investors who purchase good works at reasonable prices and then hold them for decades before selling.  In fact, I think that the minimum investment holding period for fine art and antiques is realistically 7 to 10 years.  Anyone looking to hold an artwork for less time should expect to take a loss on the sale.