Each investor has a different level of return they will be targeting. The level of return that you will target will primarily depend on the level of risk you are comfortable taking on. Generally, with investing, the higher the risk, the higher the potential return. This maxim can be true for all manner of equities and assets, including art collecting.
One way of determining the level of risk and return you are comfortable with is to understand the returns you might expect to gain from other assets, like stocks, bonds, property, and precious metals.
Damien Hirst, The Currency, 2021
Bear in mind that the following is a generalized view of the different returns from different asset classes, and past performances should not be taken as predictions for future performance. Additionally, I have opted to examine the returns over quite a long period of time so that bubbles or phenomena are limited in how they impact the data.
Imagine you have US $100,000 to invest into one asset in the year 2000, which is a little more than 20 years ago. These are the returns you might expect to have received from four different asset classes:
Gold / Silver
The average price of gold in 2000 was US $272/oz. The price of gold at the end of July 2022 was US $1,766/oz. With these prices being so, you could have expected a return on gold of 550% over this 22-year time frame. As an annualized rate, this works out to be a return of 9% per year.
If you had invested the hypothetical US $100,000 in gold in 2000, the value of this investment would now be worth approximately US $650,000.
Gold’s little cousin, silver, has had a similar meteoric rise. In 2000, the average closing price for silver was US $4.95/oz, which has since grown to US $19.20 (at the time of writing). In the case of silver, a US $100,000 investment in 2000 would now be worth approximately US $390,000.
Note: The returns that silver generated occurred mostly in the first 10 years after 2000. After hitting an average high of US $35/oz in 2011, the price of silver averaged a price of US ~$20/oz in the proceeding 11 years.
Bonds
There are numerous kinds of bonds available to be bought and sold. For this exercise, I’ll refer to the US 1-year US Treasury bond to get a somewhat even picture of the returns you could have expected from investing in bonds.
The average return on the 1-year Treasury over the past 22 years was 1.72% per year. Bear in mind that the returns on bonds have fluctuated in between 6.11% in 2000 and 0.10% in 2021, and 1.72% is just the average.
This means that if you had invested US $100,000 into US 1-year Treasury bonds (and reinvested the interest earned over this time also), the value of your investment would have grown to about US $145,000 as of July 2022.
Stocks
If you are new to investing in stocks, you might be well aware of the boom and bust cycles that this asset class can go through. Even so, the value of stocks tends to increase over the long run, and since 2000, the value of an S&P 500-indexed stock fund has increased by ~300%.
If you had been wise enough to invest US $100,000 in a S&P 500 indexed fund 22 years ago, you might now be holding a stock portfolio above US $400,000.
Artworks
According to Artprice, the value of blue-chip artwork has grown, on average, 8% annually since 2000. This annualized growth equates to a total gain of over 400% over this time frame, which is a little more than stocks, far more than bonds, but eclipsed by the precious metals.
Put another way; if you had invested US $100,000 in some of the top contemporary artists in the year 2000, you might be looking at a portfolio of half a million dollars in 2022.
