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How A Changing Economy Can Affect Art Collecting

By: Mike Watson - Updated: 23 Oct 2012 | comments*Discuss
 
Art Collecting Investing In Art

It was with trepidation that any one with investments, high borrowing, or new mortgages watched the recent financial crisis that surrounded the affairs of lenders Northern Rock.Due to the fast growth of the economy it has seemed that some new banking groups have been taking dangerous risks with their borrower's money. Northern Rock, for example were borrowing money from other banks in order to then lend money to their clients. This unprecedented move perhaps made sense in these times of loose borrowing without repercussions. However, a recent slump in the U.S. economy had inevitable repercussions for the U.K.

Those established banks that continued to lend in the conventional way were able to ride the storm with relative ease: Northern Rock, however, felt the squeeze as customers and investors panicked about the security of their savings. This led to the unusual step of the Bank of England bailing Northern Rock out.

In less stable times this would certainly have tipped the scales and led to financial instability across the board. However, the strength of the U.K. economy proved again to hold up. Within a week the stock market had stabilised, with even Northern Rock recovering a lot of their lost value!

So what does this all mean? It points to two things: the continued strength of the U.K. markets, and the simultaneous need for caution.

Impact of the Economy on Art Collecting
It is natural that following a brief economic scare people are liable to be more cautious with their money. It is advisable, for example to not take obscene risks when you're art collecting: If you buy high priced luxury works now, you may find you are unable to sell them in order to free up funds in the future.

On the plus side, this whole situation should stabilise and even reduce the cost of art collecting temporarily, so if you're investing in art, by all means buy within your budget, bearing in mind that it may be a while before you can see any real financial return on the work.

The refrain heard across the U.K, financially speaking, over the past few weeks has been 'don't panic'. The same must be said for art collecting - panic buying and panic selling is no way to invest in art and build a financially secure collection. At this point it is possibly best to console yourself that we are still riding one of the best economic periods of growth in the history of the Western world. With a new build gallery opening in East London recently (Rivington Place) it seems this pattern is set to continue. Be warned, however, that mindless frivolity is no way to take advantage of this economic boom!

If at all doubtful about investing in art it is probably best practice to put a higher percentage of money than normal in a steady easily accessible high interest savings account than collecting art. This way, if the housing and luxury goods market takes a battering then you still have something to fall back on. Safe in this knowledge, you can be sure that your art collecting can continue to provide enjoyment over time, and you will not be selling the family silver (so to speak) in order to get by!

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