Investing In Art (Part 2 of 3)
The Risks of Art Investment
As with any investment, there are unique risks involved in purchasing fine art. For instance, although artwork has the advantage of being relatively unaffected by other sectors of the economy, it has far less liquidity than stocks. When you have shares to sell, you can be sure that someone will buy them, someone who predicts that their price will rise even higher. On the other hand, you might buy a painting for $25,000, find that it’s worth over $50,000, and still not even be able to find anyone interested in paying $10,000.
In a similar vein, the popularity and perceived value of a piece can fluctuate wildly. Its appraised value may climb or remain the same, but other investors will not always be willing to pay that price. Because of this phenomenon, “bargains” are not always what they seem. A collector may try to sell you a piece valued at $20,000 for $10,000, but that’s probably not a smart investment if you can’t find a buyer in the next five, ten, or even fifteen years.
Finally, you run the risk of being scammed when you attempt to purchase original pieces of art. Rarity and uniqueness are what make artwork so valuable, so there are always unscrupulous dealers who try to make enormous profits selling reprints as originals. Fortunately, you can easily mitigate this particular risk by hiring a well-trained appraiser to evaluate your potential investment.
Overall, these issues with liquidity, value fluctuations, and appraisals are the reasons why art needs to be a long-term investment strategy. The art market can indeed be volatile, but with a proper, diversified investment plan, you can drastically increase your chances of success.
How to Buy Artwork
The first step in making an investment in fine art is deciding your budget. This will obviously vary from person to person, but one of the most important things to consider is the diversification of your portfolio. Because of its lack of liquidity and unpredictability, no financial consultant worth his salt would recommend that you focus solely on artwork. Make sure you invest in shorter-term and more predictable industries before setting aside money to buy paintings or sculptures.
Once you have determined how much you’re willing to spend, you may also want to look into joining an art mutual fund. You may only have a few thousand dollars to put towards artwork, but a joint effort at purchasing higher-dollar pieces may carry a much higher return on investment. And whatever you do, don’t buy cheap for cheap sake. If you can’t afford to buy anything promising, and if you aren’t going to personally enjoy what you buy, then put your money into a different industry.
Next, you’ll need to determine where you’re going to buy your artwork. Many people who are interested in art solely for its monetary value choose to make their purchases at online purveyors like Sotheby’s or Art Brokerage. These particular sites are very reputable, and the Internet is fine as long as you or an appraiser puts a great deal of research into your purchases. However, the Internet also makes it easy for scammers to sell you reprints and fakes. If you choose to buy online, do so with caution.
You might instead choose to buy artwork at auctions, which tend to sell very high-end pieces by renowned artists. These are fantastic if you’ve got a budget in the hundreds of thousands, and if you or a stand-in bidder is very knowledgeable about the pieces up for bid. Reputable auction houses tend to have strict authentication guidelines, as well, so this method gives you a piece of mind you might not get from an online purchase.
If you have a low budget, however, an art gallery may better suit your needs. Galleries usually carry cheaper pieces by lesser-known artists, and they allow prospective buyers to carefully peruse their collections before making a decision.
It is also possible to reap enormous returns on investment by starting at auction houses. If you buy a painting by a local artist, for example, and that artist becomes nationally famous ten years down the road, you might be able to sell it for many times the original price.
Finally, make sure to diversify your collection when you do decide to start buying. A great way to mitigate the volatility of the art market and keep your collection liquid is to buy a variety of pieces that appeal to a broad range of potential buyers.
This article is for information purposes only.
This article is in no way a recommendation to buy or sell certain securities or investment products. You should always consult a financial advisor before investing.
Before starting an investment program I recommend you seek independent professional legal, tax and investment advice as to whether it is suitable for your particular needs and circumstances. Failure to seek detailed professional personally tailored advice prior to acting could lead to you acting contrary to your own best interests and could lead to losses of capital.
I expressly deny any liability to you for loss in any manner or form now or at any time in the future. You should be aware that some investments will lose money.