Are art and collectibles a better option than stocks?

The global stock markets have taken a bit of a knock of late, and as often happens when there’s a wobble people wonder if they should stay in the game or sell their shares and invest in something else. From art and collectibles to crypto or gold, what other – possibly safer – options are there for people to invest their money in?

A tough year

The stock market has had a difficult 10 months, says Nicholas Charalambous, managing director, Alpha Wealth. “What we are seeing is great movement up and down due to events such as rising interest rates, global uncertainty, and, of course, the crisis in Ukraine early in the year with the knock-on effect on supply and raising commodity prices.”

The technology-heavy Nasdaq was hit much harder than the stock market and is still down by 22.5 per cent since the beginning of the year, says Grit Young, valuations partner, EY Ireland. “This may seem concerning for Ireland which has benefited from a mass migration of technology companies to build their European headquarters but in truth the picture is nuanced with companies that made spectacular share price gains during the pandemic (video apps, gaming, social media) much harder hit post-Covid than the big cloud providers.”

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Recession looms

For Ireland there aren’t immediate signs of a recession in the short term, says Young. However, big nearby markets such as the UK are possibly heading there, and the Bank of England has already issued warnings of a recession. “Other European countries such as Germany that are hit particularly hard by energy shortages are also expected to slide into recession later in the year. The US economy is likely to be more resilient and this should benefit Ireland, at least comparatively speaking.”

There are so many competing pressures which have arisen at once that the market has never been more difficult to read, Young says. “Since the war broke out market commentators keep saying how confused they are by how the markets react to the news: often in the opposite direction compared to expectations. Investing will continue to be a choppy ride at least in the short term.”

Protecting your assets

The key to wealth preservation is to manage risks, says Charalambous. “The principles of investing shouldn’t really change. If someone is investing over a longer period for their retirement, for example, the recent movement in markets shouldn’t really affect them. However, if they are saving for a deposit for a property then they should ensure they are not in risk assets and the time frame is not sufficient to ride out these movements.

“The key message is the longer you invest the more risk you should accept but anything less than five years should be in cash or cash-like assets.”

Other options for investing

Art and collectibles as an investment asset class is not a recent phenomenon and has been around for centuries, says Charalambous. “It does provide diversification to traditional investments such as shares, property or bonds. It is generally riskier due to several factors. These include fraud and illiquidity (in that they generally can’t necessarily be sold easily as you have to find a particular buyer). Also, the costs of buying, holding and selling, such as the cost of storing, maintaining and insuring the items, for example.

“Returns can be considerably higher than other asset classes but so can losses as it is difficult to determine what will appreciate in value.”

All that glitters isn’t always worth investing in

Charalambous says there is a wider range of asset classes than ever, and includes commodities such as oil and gold. Yet these can be quite risky also. “Bonds such as corporate and government bonds which tend to be a safer, but not capital secure, asset class are used by a lot of fund managers to diversify risk. Property is also used to diversify risk and generally isn’t correlated fully with stocks.”

The price of gold usually rallies in bear markets, says Young, and it briefly went up sharply right after the start of the war but it is now lower than at the beginning of the year when the world economy was still in post-Covid recovery.

Other assets include crypto, and a new option to invest – the non-fungible token investment, which is often the very modern equivalent to investing in art, says Young. “Neither market is not doing well at present, not least due to concerns over a lack of regulation.”

Future investments

Regardless of what you decide to invest in, it is really important to consider many different aspects, says Charalambous. “These include risk; the time frame of the investment; the cost of buying the investment; the cost of managing; the cost of selling; what access you have and any penalties relating to accessing the investment; the tax implications of any gains.”