What Do You Need to Know about Using Fine Art as an Investment?
When you make the decision to invest in art, it can feel more like a gamble than an actual investment. Major art deals make headlines, but it may seem like these transactions are not very common. Some pieces have sold for tens of millions of dollars, even with the artist alive, but finding these works is no guarantee.
At the same time, the global art industry is booming, with dozens of billions of dollars of sales each year. While beauty is subjective, the value of certain pieces is much more objective and including artwork in your portfolio can prove a good move provided that you recognize the risk and understand the unique pressures within the industry.
If you are willing to put the necessary time and energy into art investing, your payoff can prove quite significant. Here’s what you need to know:
The Basics of Investing in Artwork
The first point to know when it comes to investing in artwork is that you need to do extensive research if you want to realize returns. Before you begin to make purchase, spend a few months learning about the industry, reading auction news, and following trends in valuation. You might develop relationships with curators or art specialists who can perhaps give you some inside scoops about developments in the industry.
Once you have the confidence to enter the market, you should know that curators and consultants will sometimes put pressure on you. Take these opinions with a grain of salt and trust your own research and the insights of people with whom you have long-term relationships. Many beginning investors prefer online auctions because they are less intimidating.
The other point to know is that there is a subjective component to the value of art in addition to an objective one. This can make valuation very difficult, but there are rules you can learn. For example, living artists tend to be valued lower than deceased ones who have a finite body of work.
Also, you need to consider more than just media praise and public recognition as you think about investing in the works of a particular artist. While this temporary recognition can cause sharp spikes in value, the larger place of the artist within the industry is more important for lasting value. This is why it is so important to develop relationships with art professionals if you are serious about investing.
The Potential Benefits and Risks of Art Investing
Art investing is an alternative strategy with its own unique potential benefits and risks. Many art buyers with experience and insight have made a lot of money on this venture. Even modern pieces can generate very high yields in a short period of time. For example, a piece painted in 1986 recently sold for 125 times the original investment after the purchaser held it for only 25 years.
These types of returns have encouraged many people to begin investing in art. While this high of a return is rare, it is also not necessarily a coincidence for people who take the time to plan and do a lot of research on the historical and cultural significance of certain artists and their pieces. Plus, investing in art also provides you with great pieces to display in your home for the investment period.
At the same time, many risks come with investing in art, and it is not the right choice for everyone. The major issue to consider is the illiquidity of these assets. You may need to wait years to sell a piece at auction even after you have decided to put it up for sale. Art should always be thought of as a long-term addition to a portfolio, or at least a medium-term one.
In addition, you should think of art like stock. Political events and other circumstances can affect the price of particular pieces. To protect your collection, consider diversifying in terms of artists, styles, and time periods. That way, if something happens within the industry, you do not lose out with all your pieces.
Should You Invest in Works of Art?
As mentioned, investing in art is not the right decision for everyone. Making money through this endeavor means putting in a lot of time and energy doing your due diligence. Even then, there is no guarantee that you will make money or even get back your initial investment. However, this is true of any investment.
If you are serious about investing in art, you may want to look for a reputable advisor who can help you with your research and give you guidance on how to purchase, protect, and eventually sell the piece. Investing in art is not appropriate for someone who wants a quick return. Expect to hold the pieces for years or even decades.
To that end, invest in pieces that you like and will be proud to display in your home. People who do not have an inherent love for art may want to pursue other investments considering the amount of time and energy you need to devote to the industry.
