Investing in Artwork. Is it worth the risk?
Art collecting has been a popular hobby for many decades, but it is increasingly becoming a lucrative form of investment. Investing in artwork can have many benefits, from diversifying one's investments to providing a source of aesthetic pleasure. In this article, we will explore the art investment market and provide tips for investing in artwork.
Overview of the Art Investment Market
The art market has seen significant growth in recent years thanks to an influx of new collectors from emerging markets such as China and India. According to the 2019 Art Basel and UBS Global Art Market Report, the global art market reached $67.4 billion in 2018. This figure represents a 6% increase from 2017 and marks the highest level of sales in the past decade.
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Another sign of growth in the art investment market is the increasing number of art funds, where investors pool their money to purchase artwork. There are also online platforms that facilitate art investment by allowing investors to buy fractional shares in art collections.
Benefits of Investing in Artwork
Investing in artwork can provide several benefits, including:
Diversification: Artwork is a tangible asset that can provide diversification to a portfolio that may be heavily invested in stocks, bonds, and other financial products.
Long-term Appreciation: Art markets have shown long-term appreciation in value over time such as equal to or greater than other traditional investments like stocks or bonds.
Hedge Against Inflation: Artwork has been shown to be a hedge against inflation. When inflation happens, purchasing power of individuals decreases, while the value of hard assets like artwork can rise.
Intellectual enjoyment: Having artwork on display in a home or office can provide aesthetic and intellectual enjoyment to the collector.
Risks of Investing in Artwork
Like any investment, investing in artwork also comes with inherent risks, including:
Liquidity: Artwork is a long-term investment that is not highly liquid. When an artwork is sold it can take days or months or even years before the transaction is completed.
Valuation: The value of artwork can be difficult to determine as it is inherently subjective, and the price depends on the current market trends and art collector's interest in the piece.
Transparency: The art market is not as transparent as other markets; often, the art dealers, collectors, and auction houses don’t disclose the transactions publicly, making it difficult to ascertain the true value of the pieces.
Cost of Maintenance: Artwork requires maintenance, from climate control to insurance costs to protect from damages which can add to the cost of owning an artwork.
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Tips for Investing in Artwork
1. Research the artist and artwork
Before investing in an artwork, it is important to research the artist and the piece. Learn about the artist's background, reputation, and track record in the art market. Study the artwork's history, provenance, and condition. By doing research, you can become more knowledgeable about the art collection market and improve the chance of selecting a high-quality artwork.
2. Set a budget
Whether investing through an art auction or purchasing from a private gallery, it is important to set a budget, research, and stick to the predetermined price range. Art investment has proven to be volatile and maintaining a budget can prevent overspending.
3. Diversify the Collection
It is important to diversify the artwork collection by buying a range of art styles, mediums, and time periods. This approach mitigates the risk of the valuation of the collection. Collecting from a wide variety of artists and periods ensures that the collection avoids being valued according to any single market fluctuation.
4. Buy From Reputable Dealers
Buying artwork from reputable dealers is essential, especially when dealing with rare or expensive pieces. Do research on art galleries and dealers to ensure they are trustworthy and transparent about their collection holdings.
5. Attend Auctions
Auctions are good venues to buy or gain insights into the art market. Attend well-known auction houses such as Christie's, Sotheby's, or Bonhams, and learn from the works of art that are up for sale. Attend auction previews as early as possible to have enough time to inspect the artworks before the auction. It is essential to research the auction houses and the artwork's sales history before attending an auction and bidding.
6. Store and Protect Artworks Properly
Storing and protecting artwork properly is vital. Investing in strong security systems such as alarm systems or safes protects artwork from damage or theft. That said, if the artwork is of extreme value, the owner must take more substantial actions, such as hiring security personnel or reaching out to insurance companies specialized in art.
7. Work With Art Professionals
Art professionals such as art appraisers, advisors, and conservators can be invaluable when investing in artwork. They assist in determining the value of the artwork, provide advice on purchasing decisions, and help with the proper upkeep to ensure the artworks maintain the maximum value.
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Conclusion
Investing in artwork can be an excellent way to diversify one's portfolio, hedge against inflation, and enjoy the aesthetic pleasure of collecting art. Art investment is a long-term investment that requires research, diversification, and the consideration of the above risks. Investing in artwork for the long term, displaying the art, and enjoying the intellectual benefits of collecting artwork can be personally rewarding while also providing a source of financial returns over time.