The Fine art of Investing in Art

What’s Luxury without risk. Art as an investment is a game of high risks. Longer investment cycles, high maintenances, high illiquidity, chances of acquiring counterfeit, long periods for value appreciation are some of the factors that make investing in art not for faint hearts. That does not mean you cannot step into it. Here are some things you might consider before entering the world of art as an investor.

The 2019 annual report by Art Basel and UBS Global Art estimates that worldwide art sales surpassed $67 billion last year. The fine art market continues to boom. It seems that every day, another auction record is set for “the highest price ever paid .”


Unlike other forms of monetary investment where you can pull out when a sudden financial need arises and still get decent returns, art investments don’t allow you this flexibility. The pricing here is more based on market trends and you need to find the right buyer.


As a rule, the works of prolific living artists are appraised at a value lower than those of a deceased master artist with a finite number of works attributed to them. Therefore, art produced by deceased authors or artists generally sells for more and accrues value faster than art by contemporary artists.


Once you feel knowledgeable enough to jump into the market and attend an art sale, don’t let the curators and consultants intimidate you. Often, gallery curators go to great lengths to impart their vast art history knowledge to collectors. Sometimes the advice and insight proffered by gallery experts can contradict your gut instinct about the value of the work. For this reason, online art auctions present an easier, less-intimidating environment for new art buyers.


In sum, art investing is hard work. For an artwork to generate significant returns, the buyer must consider the overall influence of the artist beyond media praise and public recognition.


To make money investing in art, you have to nail the basics. Treat your art purchases like alternative investments. As if you were purchasing stock or other securities, buy and sell high-value artwork through a reputable advisor who can facilitate research, bidding and maintenance.


Some of the key points to consider before becoming an art investor.


Join the art community

To improve your chances of making a good art investment, start building a professional network in the fine art space by attending art exhibitions and auctions regularly. Those who do well investing in art often have a deep appreciation for art and enjoy spending time at fine art socials, galleries, and exhibitions.


Focus on one category.

Choose a category of art or style that interests you the most. Focus your attention on studying that one category instead of randomly picking up pieces that appeal to you. The more you concentrate on one category the better are your chances of making the right decision.


Be aware of the latest trends

Check on international trends. Most of the information is available online. As soon as there is a demand for a particular genre of art gaining momentum, make your move.


Invest in a facilitator

The fine art market can feel something like an impenetrable old boys’ club. To help your entry into the market, consider hiring an expert in the art world. An art investing consultant can help you place well-informed bids on pieces and prevent you from purchasing a dud.


Start small

Do not rush with your investment. Divide your kitty into how much you would want to spend each year. This would also give you enough time to gauge the market response.


Be firm and negotiate

While buying, make a fair offer and wait. If the artwork is available at your said price, you will get it. If it is of higher value and you didn’t think so, it’s not worth having it. While selling too, be firm on your pricing.


Be wary of the risks

Art is a highly illiquid asset class. If you are looking to flip an undervalued artwork to make a quick buck, think again. It can take years to have your art piece sold at auction. That is why it’s always recommended to consider art investing a medium- to long-term addition to your portfolio.


To mitigate the risks inherent to art buying, diversify your collection by purchasing art from various artists, artistic traditions and historical periods.


Emerging/young artists

While you must divert your resources to investing in work that is known and widely accepted, you may also want to check on the work being done by emerging artists. .While the risk is higher, the payout is usually much more if the artist you select happens to make it big. It’s like gambling. However, it’s also advisable to not park all your funds in emerging artists and have a mix.


Investing in art comes with its own set of challenges and risks

Expensive works of art are often stored in protective boxes complete with detectors to monitor humidity and temperature levels and to protect them from sun damage or other accidents such as a spilt cup of coffee. And if you do put it on your wall then your insurance costs are likely to be high, not to mention the increased possibility of the expensive art piece getting stolen. Art is also not a regulated investment so when things go wrong - for example, an artwork turns out to be a fraud - then investors are on their own and cannot fall back on regulation for any compensation.


But that should not deter you from moving forward and you don’t need to be a millionaire to start buying the art.


The Affordable Art Fair (AAF), which started in London’s Battersea Park in 1999, now holds fairs in more than 10 cities around the world. While prices can be as high as £6,000 for a single painting, the AAF’s average selling price in the UK is £600. Most art industry experts suggest that you buy a piece of art because you like it, not because you want to get rich. The most sensible approach is probably to buy something they like and can afford and, first and foremost, be prepared to keep it just for their pleasure. If it goes up in value that should be just a bonus.”


Many people who buy paintings don’t end up selling them later on, and that fact can skew pricing samples for art. When a painting is auctioned, it’s often because the owner of the work thinks the piece will attract a handsome price. Auction prices reflect over 40% of art resales, and some experts estimate that only 0.5% of paintings bought

are ever resold.


If you have a true find hanging on your wall, and you’re ready to part with it, your best shot at a decent payout will be a fine art auction house, which will typically charge as around 5-25% of your sale price for auctioning your piece. Still, art is a long-term investment, and while the art market can be stable or even show gigantic returns on investment during boom times, it is one asset that can easily plummet in value during seasons of recession.


Before we conclude, a few Quick Guidelines for buying art for investment


Do’s

  • Remember - Investing in art is a long-term return investment option. Keep patience and it will pay off.

  • Do your research well. Make sure you verify the origin of the painting/work of art. Do NOT go by what the dealer or the auction house has to share. Connect with the artists if you can if he/she’s alive.

  • Feel free to ask as many questions as you want to the dealer/auction house about the painting/work of art. Go ahead only when all your doubts and queries have been attended to.

Don’ts

  • Don’t get carried away by the price. If it comes at a price that is far lesser as compared to what it commands, check the authenticity. Check whether it is rightfully being sold or is it stolen or illegally being brought into the country.

  • Do NOT risk your credibility at any cost. Ask to see export licenses before buying if its an international piece of work.

  • Don’t overlook the insurance documents. Check on the insurance options made available.

  • Do not neglect it once purchased. Maintain it well.


Summary

At the end of the day, this question depends on your personal investment goals.


With an eye for art and a willingness to take a little risk, a new or experienced investor can find art investment incredibly rewarding. Though it should only be part of your overall portfolio, art can round out other investments nicely.


Seasoned, confident investors who are enthusiastic about art—and who have extra funds to cover the costs—an investment in a painting or sculpture is an exciting way to diversify the portfolio.


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