When you have an eye for art and are willing to take a little risk, investing in art can be a good way to diversify your portfolio. By no means is collecting and investing in art only reserved for the affluent elite. As long as you have a genuine interest in art, there are different ways you can get involved in the game. From buying high-quality art reproductions to investing in blue-chip originals, there is a vast range of possibilities for you to explore. Not only will you diversify your assets, but at the same time, have a great piece of art to display in your home. Yet finding the best art to buy as an investment comes with a wide array of challenges, which you need to be aware of before getting started.
Facts to know before investing in art
Comparable to stocks and bonds, the value of art can increase over time. This is because when you invest in an artwork, you are acquiring it with the expectation that the demand for that piece will be cumulative. If this is the case, then the value of your artwork will rise, and you would be in the position to sell it with a good turnover.
But how to find the best art to invest in? This is easier said than done since it is unlikely to discover the next great artist even before making their name in public and selling for high prices at auction houses and galleries. And, unfortunately, it is those who have passed away who get much higher prices than the living contemporaries in general. So you must be very lucky to pick an affordable piece of art by an artist whose career will be highly successful, with the value of their work skyrocketing.
Just like any other market, the art market is subject to fluctuation. What is special, though, is that every artwork has its individual value, so that it is impossible to determine the ‘true worth of a piece. The most important parameters in defining the value will be the artist’s reputation and the economy’s overall condition – important factors to be aware of when deciding to buy a piece of art.
As soon as you have your precious piece of art in possession, you will have to take good care of it. Maintenance is key when preserving the value of your artwork, which by nature is a tangible asset. There are two common ways of doing so: You can choose to have the artwork stored professionally for a fee, where it will be maintained at optimal climate-controlled premises. Or you might decide to buy a nice frame, display it in your home and make sure to provide it with the right room temperature, humidity conditions and to protect it from too much sunlight. Furthermore, there are several further expenses that you must deal with. These include transportation costs, fees for authentication and appraisal, insurance, and sales tax.
How to invest in art
You should have a clear idea of how much you want to spend on a piece of art from the beginning and further calculate storage, maintenance, and insurance factors. Be prepared to be risk-tolerant and only spend an amount of money that you could afford to part with in case the artwork does not appreciate as expected.
Do thorough research about the type of art you are interested in by browsing online auction houses and platforms like Artnet. It is important to get insights into how the art world is functioning. Once you feel attracted to an artist, narrow down your research and get an idea of the pricing. You can use services like the Magnus app, which provides pricing details for art investors. Simply take a photo of the respective artwork, and you will get the pricing information within a short period of time.
How much risk you take is in your hands in the end. You can choose one of these options:
- Buying an original piece of a living artist at an auction, art fair, or gallery. This is an expensive and the riskiest choice, and both ends of the spectrum are feasible: You might have found an artwork that will strongly appreciate over time being worth much more than in the beginning; on the flip side, you could have a hard time selling the piece because the career of the chosen artist didn’t work out as you’ve expected.
- Buying so-called “blue-chip art” – an original piece of an artist who has already proven to be highly popular and widely recognized in society and whose position in the auction market has been solidified over the course of multiple years. Examples of some of the most famous blue-chip artists are Pablo Picasso, Gustav Klimt, and Jackson Pollock. Here the cost will be even higher, but the risks are much lower since the artwork will most likely be holding the value much more constantly.
- Buying high-quality reproductions of a piece of art. Instead of buying original artwork, you can choose to purchase a print of the painting or drawing. A limited-edition reproduction will, of course, be much cheaper than the original but still be very valuable. You should be aware, though, that prints usually do not appreciate just like the original.
- Investing in an art fund. If you want the safety of the blue-chip artwork but cannot afford it, or you want to avoid the trouble of maintaining an expensive picture, investing in an art fund is a good option. The structure of these funds is similar to other investment funds, allowing one to partially own a piece of art. Artvest defines an art fund as a structured investment vehicle that is open to third-party investors for the purpose of financial gain. The artwork is securitized, which makes the market for artwork’s shares more liquid. As a result, it is much easier to buy and sell shares of the piece of art than doing the same with the artwork itself.
Is buying art the right investment strategy for you?
As outlined above, investing in art does not come without risks, and many factors should be considered when diving in. Notwithstanding, investing in art can be a good option for you if you have a true passion for art and enjoy thorough research into the art market. If you love going to museums and galleries, if you are on the lookout for a good fit for decorating your home anyway, then turning this appreciation into an asset comes easy. However, if you are not drawn to art in itself, other investment opportunities will be more appropriate.
As an art investor, you should have a high-risk tolerance. This means that naturally, any profits from your purchase are welcome, but you should not build your financial future around receiving these profits. Do not invest in art if you cannot afford to lose it.
Furthermore, it is recommended that you already have an established portfolio of other investments before buying into art. On this basis, art investments can be a good way of diversifying your assets, especially since the art market does not rise or decline in coherence with the stock market.
And lastly, if you decide to physically own a piece of art, you should be prepared to hold on to it for a longer period of time and not expect to be able to liquidate your holdings quickly. This includes being able to cover the costs for the maintenance and insurance as required. Even if your piece of art has a great monetary value, being an illiquid asset, it will take much longer to sell than liquid assets such as stocks, bonds, and savings accounts.
Final thoughts
As an art enthusiast and with the willingness to take some risks, an experienced investor can find art investment exceptionally rewarding. Even if it should be only a small part of your overall portfolio, investing in art can complement other investments nicely. Buying artwork that you enjoy might not only be financially lucrative but will further make you happy when displaying it in your home.