What is Monetary Policy and how to invest in art

What is Monetary Policy?

Monetary Policy is a tool used by the central banks all around the world to manage money supply in the economy in order to achieve a desirable growth. The Central Bank controls the money supply by increasing or decreasing the cost of money, the rate of interest.

This is because after 1971, the Gold standard has been removed worldwide and now the modern money is not backed by any gold. Modern money is not the derivative of gold anymore but it is the derivative of debt these days. Therefore modern money is stretchable or contractible according to the need of businesses and the economy. It is like Elastic money.

Different Types of Monetary System

Monetary policy can either be expansionary or contractionary in nature. Under an expansionary policy, policy makers increase the money supply in the system by lowering interest rates. This is done mainly for two ( 2 ) purposes.

– to boost the economic growth

– to reduce the level of unemployment in the economy

In Contractionary policy the cost of money is made costly by increasing the rate of interest, which in turn helps to reduce the money supply in the system and combat inflation.

Thus, we can stretch and contract the modern money according to the demand or the economy. Previously, to print new money, the governments HAD to reserve the same amount of gold before printing it. But in the modern world (After 1971), money is not backed by anything. We can contract and stretch the money supply according to the needs of businesses and economy.

And thus, the Asset holders always win in the game of money. That’s because if you own any Assets then you MUST have money flowing into your bank accounts whether you work, sleep, or travel the world. If you want to beat the modern money game then create Assets in your life. An Asset can be anything such as Web properties, books, movies, music, businesses, stocks, bonds, gold, real estate, mutual funds or anything else of that nature.

Do’s and Don’ts of Investing in Art

Art is an Asset class. People buy art not only for hobby purposes but they basically invest in art. An art is the Investment vehicle. Owning an art is just like owning any other asset such as Stocks, Bonds, Gold, Real Estate, Mutual Funds, Businesses and any other asset.

However investing in art is not as simple as walking into a gallery and picking out the piece that you thought would look best in your living room. It’s the job of an expert. Only collectors and real art experts can pick up the classical art from large collections of art pieces.

Dos and Don’ts of Investing in Art

– Choose historically significant pieces of art

– Take time to do research into the exhibition and literary history of piece that has caught your attention

– Do not go for Cheapest bet or by hearsay

– Remain invested for at least five years, to benefit from appreciation

– Begin by investing only 5-10% of your portfolio in art

Just like investing in stocks, real estate, mutual funds, and businesses, you do the proper research and ONLY after proper research should you invest. You have to conduct proper research; otherwise you will miss on great investment opportunities.

Remember: Art only makes sense as an Investment if it has a credible amount of historical significance. Without this, no art work should be contemplated.

The second factor you have to see is the Market. Most of the investors invest in paintings because there is a huge and liquid market for this. Thus, you will find a ready buyer for your art.

According to experts, you can give 5-10% allocation of your portfolio towards the art. You can buy art either from art galleries or from Auction Houses.

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