Primer: Investing in Art

Posted by under In Focus, Investing . Published: March 6, 2020

Diversification is an important principle of investing. Putting your money in various types of financial instruments and asset classes helps minimize your risk.

Aside from the usual paper assets such as stocks, bonds, and mutual funds; many long-term investors would also invest in tangible assets such as real estate, jewelries, antiques, rare collectibles, and of course, artwork.

Investing in art used to just be for the rich and famous. But thanks to the Internet, research and knowledge about artworks are now more accessible. This has empowered the average person to venture into the lucrative world of art investing, without fear of looking clueless and getting ripped off.

Different Types of Art

There are many different types of art. Beginners tend to immediately think of paintings and sculptures, but there’s also drawings, photography, digital and mixed media, prints, and even video. Moreover, craftworks such as pottery, embroidery, glassworks, and similar pieces can also be considered as a piece of artwork.

Original works are highly valued in the art world. Its rarity is what justifies its price tag. For this reason, most art investors prefer buying and selling them.

However, copies and reproductions of an original artwork can still fetch a good price in the market. Investors with limited funds tend to begin their art venture by collecting these, before moving towards the more expensive originals.

Prints, for example, can appreciate in value especially if it’s a limited edition that the artist of the original work has agreed to be reproduced. And if a print has the artist’s autograph, its value can further increase considerably.

Then there are prints of very high quality, which is called a giclée. Art dealers often describe these as “museum quality” copies. A giclée can consistently appreciate in value over time, much like their original counterparts.

How to Buy Works of Art

It’s necessary to do your homework before you buy your first piece of art. Here are four things to do due diligence on.

1. The Artist.
Someone with an interesting back story tend to generate good interest from buyers. Research on the artist’s reputation, including previous exhibitions and awards. Art galleries will most likely have information on the artist’s biography as well.

2. The Artwork.
Understand what exactly you are buying, particularly, if is it an original or a copy or reproduction. Research on its history and check if it’s part of a series of works by the artist. Moreover, obtain an appraisal of the piece from different sources, to ensure that you are getting a good investment.

3. The Dealer.
The reputation of the dealer or broker is also very important. Do research about them with extreme scrutiny. You can also inquire in established art galleries regarding the reputation of a particular supplier.

4. The Market.
Finally, know which market does the art piece belong to. If It’s never been seen or sold before, then it belongs to the primary market and you need to research on the artist’s previous works to know how much the piece could potentially be sold for. If it belongs to the secondary market, then check on its historical prices and what factors affected its price tag before.

Where to Buy Art

Auctions
Participating in an art auction is always an exhilarating experience. But be sure to research on the pieces that will be presented beforehand, so you can price your bids accordingly.

Galleries
Artworks on display in galleries often belong in the primary market. It’s a great place to discover up and coming artists that may someday become big.

Art and Crafts Fairs
These events are a good place for beginners to develop an eye for art. More than looking at the works on display, take time to mingle with other art lovers and artists there.

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Online
Everything is now being sold online, including artwork. If you’re hoping to get pieces from other countries, then consider buying art over the Internet. Just make sure that you only buy from reputable websites.

Selling Your Art

Art investors can sell their pieces where they originally bought them – in auction houses, galleries, art fairs, and online. But it’s also common to sell them directly to your network. Thus, it’s important to build a list of clients, particularly art collectors and other art investors.

Advantages of Investing in Art

1. Physical Asset.
It is an asset that you can hold, unlike paper assets such as stocks or mutual funds. Most people consider this as an advantage.

2. Enjoyment Value.
Many art investors are collectors first and investors second. To be able to display and appreciate your investments is a benefit that you can experience.

3. Less Price Fluctuation.
Unlike paper assets, there’s much less volatility on the prices of artworks. More often than not, they simply appreciate steadily over time.

Disadvantages of Investing in Art

1. Barrier to Entry.
The main barrier to entry into the art world is lack of knowledge. Lots of research is needed to break into the scene.

2. Not a Liquid Asset.
Art is not a liquid asset compared to paper assets. Selling art can take a bit of time, effort, and planning if you want the best price for your piece.

3. Risk of Loss or Damage.
The downside of owning a physical asset is that it’s susceptible to loss or damage if not stored and cared for properly. Getting insurance for high-value items is a must to protect your financial investment.

4. No Guaranteed Appreciation.
Lastly, there is no guarantee how much a piece will appreciate over time. The world of art can be fickle-minded and highly subjective.

In Summary

Investing in art can be extremely lucrative, but there’s never a guarantee that a piece of art will appreciate in value. Research and education is a necessity to have the best chances of success in this venture.

This means going to museums, galleries, auctions, art events, and immersing yourself into the world of art. Observe and look for art with a collector’s eye, but think and decide with an investor’s mind.

Read next: 12 Alternative Investments To Consider If You’re Looking To Diversify Your Portfolio

This article also appeared in Moneysense Magazine.


Art credits: Steve Johnson

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