Friday, May 1, 2009

Antiques as investments

“Your children will thank you. Include American Paintings and Rare Documents In your diversified portfolio.” So reads an advertisement in the latest issue of Antiques Magazine. I grimaced as I read this, for I think this is not at all the right way to approach the acquisition (or selling) of antiques, be they paintings, documents, prints, maps or whatever. Antiques should not be bought or sold primarily as investments.

There is, however, a kernel of truth in the notion of antiques as investments, for antiques generally do rather well in terms of holding their value over time. As long as one is buying an antique of quality, in good condition, and at a price that is not totally out of line, past experience has shown that that the antique will maintain its relative value over the years. Compare that with a new piece of furniture or a new work of art, where (like with a new car), the value often goes down significantly as soon as it is “driven off the lot.”

Why do antiques maintain their value so well? The main reason is that most of the value of an antique comes from factors that either do not change or change for the better over time. Antiques have a value that it time tested, that has been established over the years and is mostly not a result of a particular trend or fashion that will change with the new season.

For instance, many antiques get much of their value from their function (e.g. as a chair to sit in or table to eat off of) and a well-made piece of furniture will always have its practical value. Other antiques get much of their value from their historical context, their natures as artifacts of our past. This value, rather than diminishing over the years, actually increases as time passes. A life-time portrait of Washington or a contemporary view of the Chicago fire will only become more valuable as the subjects they depict recede further into the past.

In contrast, the value of a modern item often comes from its newness and its fashionableness, both of which factors will diminish within a short time. Of course there are antiques which can have an inflated value at a particular time because of their being “in fashion” and there can be modern furniture and art that will prove themselves over time, but generally one can be more confident that an antique will retain and possibly increase its value as the years pass than that this will happen for a new item.

If that is so, then why shouldn’t one look at antiques as good investments? There are two main reasons why this is usually a mistake. First, the value for antiques does tend to go up, but usually not in a steep curve. Whereas the fact that an antique has proved its value over time means that the value will be unlikely to steeply decline, this also means it will be unlikely to dramatically increase. There is always a cost of buying and selling, and the steady but slow increase in value of antiques means that years generally have to past before the value has gone up enough to “make a profit.”

The second reason is more important and that is the fact that antiques are not really liquid investments. They are often not easy to sell at their full value. Unlike some collectables, such as stamps, there is not a big enough market that an owner can feel confident of being able to get a reasonable percentage of an antique’s value if the item needs to be sold at a particular time. An Audubon print may be, say, reasonably valued at $60,000, but that doesn’t mean that an owner can get anything like that if she needs to sell it within the next month or so.

So, I think it is a mistake to treat antiques primarily as investments. On the other hand, if you do want a desk, rug, or picture for the wall, buying an antique can be smart financially, for the antique is likely to retain or increase its value over time. So the advertisement in Antiques may be right that your children will thank you, but just don’t think of antiques as part of your “portfolio.” They should be part of your life.

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