Each investor has a different level of return that they will target. The level of return you target will depend primarily on the level of risk you are comfortable taking. Generally, with investing, the higher the risk, the higher the potential return. This maxim can be true for all kinds of stocks and assets, including art collecting.
One way to determine the level of risk and return you’re comfortable with is to understand the returns you might expect to earn from other assets, such as stocks, bonds, real estate, and precious metals.
Damien Hirst, Money, 2021
Keep in mind that the following is a general view of the different returns of different asset classes, and past performance should not be taken as predictions for future performance. Additionally, I chose to look at returns over a fairly long period of time so that any bubbles or phenomena are limited in their impact on the data.
Imagine you have US$100,000 to invest in an asset in the year 2000, which is just over 20 years ago. Here are the returns you could expect to receive from four different asset classes:
Gold Silver
The average gold price in 2000 was US$272/oz. The gold price at the end of July 2022 was US$1,766/oz. At these prices, you could have expected gold to return 550% over that 22-year period. At an annualized rate, this equates to a return of 9% per year.
If you had invested the hypothetical US$100,000 in gold in 2000, the value of that investment would now be approximately US$650,000.
Gold’s little cousin, silver, has had a similar meteoric rise. In 2000, the average closing price of silver was US$4.95/oz, which has since risen to US$19.20 (at the time of writing). In the case of silver, an investment of US$100,000 in 2000 would now be worth around US$390,000.
Note: Returns generated by silver occurred primarily in the first 10 years after 2000. After reaching an average high of US$35/oz in 2011, the price of silver averaged about US$20/oz over the next 11 years.
Obligations
There are many types of bonds available for purchase and sale. For this exercise, I’ll be referring to 1-year US Treasury bonds to get a fairly even picture of the returns you might have expected from investing in bonds.
The average 1-year Treasury yield over the past 22 years was 1.72% per year. Keep in mind that bond yields fluctuated between 6.11% in 2000 and 0.10% in 2021, and 1.72% is just an average.
This means that if you had invested $100,000 in 1-year US Treasury bonds (and also reinvested the interest earned over that period), the value of your investment would have grown to approximately $145,000 by July 2022.
Shares
If you’re new to stock investing, you may be well aware of the boom and bust cycles this asset class can go through. Even so, the value of stocks tends to increase over the long term, and since 2000 the value of an S&P 500-indexed stock fund has increased by around 300%.
If you had the wisdom to invest US$100,000 in an S&P 500 index fund 22 years ago, you might now own a stock portfolio of more than US$400,000.
works
According Artprice, the value of prime artwork has grown an average of 8% per year since 2000. This annualized growth equates to a total gain of more than 400% over this period, which is quite a bit more than stocks, although more than bonds, but eclipsed by precious metals.
In other words; If you had invested US$100,000 in some of the best contemporary artists in 2000, you could be looking at a portfolio of half a million dollars in 2022.