Investing in art was always popular with the rich and powerful who commissioned artists for creating artworks to decorate their walls. With art pieces being a limited commodity, the demand has been consistently high, making art a popular investment asset. Today, only in the United States, the total value of art possessions is estimated at around $1 trillion.
The majority of financial advisors report that more than half of their clients have been considering investing in art. Let’s take a closer look at what makes these assets so popular among investors, what’s to be aware of, and how to choose an art piece that would be appealing not only visually but also financially.
Reasons to Buy Art
Apart from purely financial reasons, possessing art has always been a matter of prestige and a way to stand out. Any space with an object of art becomes unique and delivers a special message about its owners.
As art is not directly influenced by factors affecting the stock market, another reason to buy is diversification. While the demand for art can slow down at the time of the financial crisis, its value will never be annulled when the stock market crashes. Besides, it is a physical asset under investors’ full control as opposed to having money in digitized instruments or bank accounts.
Finally, according to average estimates, art offers at least a 10-15% rate of return on investment and has increased in value by more than 1,000% over the last 40 years. Not to mention that an art investor has a chance to hit gold and discover his or her new Picasso or Andy Warhol among emerging artists, although same as with startups, it takes many bets before picking the right one.
What Are the Costs and Concerns?
Investment threshold. Unlike investing in stocks, starting as an art investor requires higher initial capital. However, while the works of big-name artists will cost millions, the average price for a work of contemporary art in 2017 made $27,600, according to the worldwide recognized Artprice portal. Still, if your budget is well below that figure, there are many options to buy directly from young developing artists or purchase limited edition giclee with an artist’s signature, which may be worth from several hundred up to tens of thousand dollars depending on the artist and can be a worthwhile investment as well.
Art prices are highly subjective. It is hard to judge the value of art without having a great eye and making emotional contact with an art piece. After choosing among forms of art, including painting, sculpture, or photography, it is essential to find more about the genres, which appeal to you most, be it realistic art, impressionism, cubism, or abstract art. Still, in the case of art, the gut feeling may often be wrong, especially without the knowledge of an artists’ background and current pricing for their other works.
Low liquidity. Art is much an illiquid commodity, which is easy to buy but hard to sell since works of art are not purchased on an everyday basis. Add to that that galleries are more eager to work with new pieces rather than to resell. With works of fledgling artists, it may take years even to get back the initial price. So investors must be prepared to keep the art investment for a long time to see it appreciate.
Need for storage. The price of an object of art is greatly affected by its condition, which may significantly change over the years. Unlike digitized stocks, art has to be stored out of direct sunlight, with a proper level of humidity, and under optimal temperature, kept throughout the year. Thus, contrary to popular belief, hanging a painting under a working fireplace is a big no-no for any art collection as soot and temperature may damage your precious investment.
Low information disclosure. Unlike the situation with stocks, art market indexes, such as Sotheby’s, Mei Moses Art Index, or others, can be relied upon only partially as they represent gallery sales since roughly half of the deals on the art market are made privately. Besides, the indexes are based on closed sales and do not cover art, which did not get sufficient bids. It is much an insider market, with information circulating between the galleries, dealers, and art advisors, so making the right decision requires quite a bit of professional advice.
Authenticity concerns. Lack of information creates risks of scam and fraud. Having an artist signature on a painting doesn’t always safeguard against counterfeiting, so it is much safer to buy only from reputable sources who run their own checks and who can provide buyers with a certificate confirming authenticity. The higher is the price, the more documentation shall be provided.
How to Start Buying Art
Sufficient resources and the ability to buy the best works of renowned artists do not always guarantee secure investment. With lower starting capital, it can be even more difficult to stay safe. Considering the complexity of the art investment, most experts suggest not to plunge into buying the first piece you got in love with or under the influence of someone’s pitch. Taking some time for preliminary research, finding the best places to buy from, and getting professional advice, have proven to be a much rewarding approach.
The first step suggested is getting some acquaintance with the forms and genres of arts as well as with the most influential artists in each period. It will help to find out about personal preferences, be it realistic art, impressionism, minimalism, or any other form of art. You may find additional references and a short introduction into the genres and forms of art in our recently published article on Understanding Modern Art: A Short Guide for Beginner Art Investors.
Getting a good eye takes practice, which in the case of art is a very pleasurable one, involving visits to as many art fairs and galleries as possible. Top fairs and galleries carefully select the works of art before offering them to buyers, providing an opportunity to get in touch only with the best. Talking to gallerists, art advisors, and other experts would help to clarify the preliminary ideas and provide more insights for making sound investing decisions.
Buying art can be very rewarding for both aesthetic and financial reasons with the right approach. It can be one of those passions which do not only provide pleasure, deliver a sense of fulfillment, and add to the prestige but also provide additional financial security and make money work.