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Art market enriches lives of adventurous investors

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Aug. 9--"Red Liz," Andy Warhol's famous rendition of Elizabeth Taylor, just went for $12.6 million. A Jackson Pollock, "No. 8, 1950," fetched $52 million. And last year, auction house Sotheby's broke all sales records when it sold Picasso's "Boy with the Pipe" for a whopping $104 million.

The art market is hot. Prices, especially in sizzling areas like contemporary works, are rising through the roof. Sotheby's is reporting big sales gains. And investment banks, eager to reap profits from paintings, are launching numerous art investment funds.

"The art market is strong in many collecting categories," said Sally Fischer, senior vice president at Sotheby's Financial Services, the lending arm of the fabled auction house.

The stock market's lackluster performance in recent years has made art look better than ever to investors looking for higher returns.

In fact, according to the Mei Moses Fine Art Index, which tracks reported art sales -- that means sales of art works at big auction houses, not at outdoor festivals or flea markets -- the annual rate of return on art over the last five years was 7.3 percent. Over the same period, the S&P 500 rose just 2.4 percent.

"When one adds art, one can reduce the overall risk to a portfolio by 10 percent to 20 percent," said Michael Moses, a professor at the Stern School of Business, who along with his colleague, Jianping Mei, compiles the index.

But before you get caught up in the frenzy, beware. While art is considered an alternative investment to stocks and bonds, it is far more risky.

For the most part, buying masterpieces and then hoping to sell them at a profit is considered a rich man's game.

"It's not something we would recommend," said financial planner Harold Evensky. "(Art) is not a very liquid market. There are big spreads and high transaction costs."

Nonetheless, even collectors who don't have a huge wad of cash to spend are finding ways to get in on the action.

Mike Rossner, the managing editor of the Journal of Cell Biology, is no Park Avenue art collector. But so far, this Ph.D. is on the winning side of art investing.

Over the last four years, Rossner has spent $30,000 on 50 works of art. His passion is vintage posters, which he buys from galleries and on eBay.

Rossner says he collects because he loves art. But he has also seen the value of the works covering the walls of his upper East Side apartment appreciate considerably since he started out.

His collection is now valued at $45,000, a 50 percent increase. That's huge compared to the paltry performance of his retirement account over the same period of time, he said.

Rossner's best investment so far is a vintage menu from a 1930s cruise ship, which he purchased on eBay for $50. Another menu from the same ship, by the same artist, just sold for $1,500.

If you are passionate about art and want to start collecting, keep in mind the following guidelines from accountant Ginger Broderick who advises art galleries and other businesses on managing money:

--Collect the works of living artists. You will be assured of buying an authentic piece of work and will have the great satisfaction of supporting a favorite artist.

--Take a look at your home insurance policy. Most often, art work would be covered by your home insurance policy. Keep a record of your purchase that includes the date you bought the art work, its price, and where you bought it. If possible, get the artist's certificate of authenticity and put it in a safe deposit box.

But your home owner insurance policy may only cover art work up to a certain value. If your collection exceeds that value, you might want to purchase more insurance.

--Beware of fakes and reworked pieces. Be wary of unscrupulous dealers who delight in scamming art buyers.

--Be cautious of auction houses. Bids can be inflated and you can accidentally become the owner of an expensive item that you can't get out of buying.

--Purchase directly from the artist. It is common to purchase art through a dealer or gallery but this can be very expensive. Dealers charge as much as 40 percent to 65 percent commission to cover their promotion and overhead costs.

Try to contact an artist directly, or visit his or her studio.

--Visit antique shops for deals. The more discerning taste you have about your favorite subject, period, or style of art, the better judgment or assurance you will have when you stumble upon a great deal.

--Keep a file with press clippings on your favorite artist. Your art work will appreciate more in value if your artist gains public recognition on a commissioned piece.

--Start your collection by purchasing prints. Do not invest in art that has more than 200 prints in a limited edition. At that level the piece is considered a mass production and it is unlikely to become more valuable.


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