Art as Investment

Posted by Jhan Dudley on

Did you know that art sales topped $60 billion in 2014, a 67% increase over 5 years? And, 75% of art collectors bought art for collecting purposes.

So, is art collecting a valid investment strategy? The truth is, it depends. Collecting may not be right for everyone. And your knowledge about collecting, the art market, and investing all play a factor. Answering these seven questions will help you determine if art collecting is a smart investment for you.

Have you done the research?

Learning about the history of the artist and the specific piece you’re interested in can boast better returns. More than blindly buying an artwork. Why? The more you know going into a purchase, the better you can assess the value of the piece. Value can be affected by everything from sales price history to the condition of a piece. As well as the story and life of the artist.

Do you have the work’s provenance?

Art collecting can be a valid investment, but it comes down to the valuation of your pieces. And, the best way to prove an art’s value is through provenance. This documentation of an artwork’s story, ownership and history,  provides authentication that can point to the value of a piece.

Do you have a good strategy?

There are so many moving parts when it comes to art collecting. It can be hard to know where to begin. Like any other type of investment, you are going to need a strategy.

A successful art investment strategy will include doing the research, building relationships, determining a budget, and understanding the market. This earlier blog post may help.

Do you understand this type of investment?

Art collecting can be worth investing in as long as you understand what you are getting into. CNBC compares art to venture-capital investing: “Just as every startup is unique, so too are works of art. Some have a track record of success, but many are prone to the whims of the market.”. And like startups, it can be difficult to determine the exact value of a piece’s worth.

The art world is changing thanks to technology. However, the reliance on a traditional gallery-focused system still plays a part in the valuation of art. And, the bigger problem, explains financial advisors at Personal Capital, is that the fine art market is highly manipulated by collectors, galleries, and auction houses. And this can greatly affect the perceived value of a piece.

Another issue is the costs associated with buying, maintaining, and selling art, adds Personal Capital. In fact, you may be responsible for a lot. Including a buyer’s premium at auction, sales tax, insurance, travel costs, maintenance, and so on.

Do you understand the market?

If one thing’s for sure, it’s that the art market fluctuates. And this must be understood when trying to see a return on investment. For instance, the contemporary art market which is most popular amongst today’s collectors is also the most volatile. Forbes explains that high demand for one artist’s work can, and usually will, affect the market for a similar artist. For this reason, having a diverse collection of artists and styles is key for your investment. As well as following the age-old investing motto “buy low, sell high.”

It’s also important to understand that collecting in the primary market—when an artwork is sold for the first time—is the riskiest investment move to make. Of course, it’s truly impossible to know if an emerging artist’s career will take off.

In short, you have to know what you are buying, and it has to be great art. Learning about art movements and history while staying up-to-date on the latest art trends will enable you to follow along with the changing market.

Do you have a reputable art advisor?

If the world of art investing seems complex, you are not alone. That’s why many art collecting experts recommend hiring an art advisor. One that’s not only knowledgeable but trustworthy. Art advisors can guide you through a myriad of collecting issues. They can guarantee you have the proper insurance, inform you when it’s time to sell, and much more.

Art collecting is like any investment.

Investing in art is not as straightforward as one would hope. It’s important to understand what goes into the investment. As well as how the art market works, and the people and strategies that will make collecting art worthwhile. Thinking through these issues carefully will help you decide if collecting art is a valid investment for you. For more on this topic read our earlier blog post.

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