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Investing in art is gaining in popularity. With stock markets reaching all-time highs, investors continue to look for alternative ways to minimize downside risks. Investing in artwork is one way to reduce risk, as you'll be diversifying your portfolio and building long-term wealth.
Investing in art has many advantages but is not sensible for everyone. As an investor, you need to determine if art makes sense for your portfolio.
If you're considering adding art to expand your portfolio, you'll first need to learn a few essential things.
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Art Should Be a Small Portion of Your Portfolio
A well-rounded investment portfolio will include a small portion of art. You can profit from art, but it won't give you a huge payout, so don't rely on art investing in getting a steady income.
Art is also considered a collectible by the IRS, which means you'll pay taxes on any gains.
Art Is Not Liquid
Because art is non-liquid (illiquid), you may find it challenging to convert it into cash immediately.
Non-liquid assets include real estate and art and take longer to sell even though they have worth. Liquid assets include bonds and stocks and make it easy to get cash.
There's no guarantee that you will profit when you sell artwork, as prices regularly fluctuate and auction houses charge fees
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What You Need to Know Before Investing in Art
Investing in art means you're buying artwork expecting the price to increase with the demand faster than the supply for that specific piece or a similar piece. This will essentially increase the artwork's value and allow you to sell it for a profit.
You will need to keep the following in mind:
- Finding the right artist: It can be challenging to choose an artist who you think can be the next big thing before they're well-known and ask for high prices for their work. Unfortunately, living artists don't get the same prices as artists who have passed away.
- Art can be a long-term investment: You may have to wait before selling your art due to the art market being illiquid. You also need to consider that brokers or auction houses will charge you high fees to liquidate your holdings once you decide to cash in on your investment.
- Art needs to be maintained and taken care of: Art is a tangible asset and takes up physical space. To retain the value of art, you need to maintain and care for it. If your art is getting displayed in your home, consider humidity, temperature, sunlight, and several other factors that can devalue the art. For a fee, storage companies can keep the art in a climate-controlled environment.
- Be cautious of additional costs: When buying and selling artwork, you will come across additional fees such as transportation expenses, sales tax, insurance, authentication, and appraisal fees.
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Types of Art Available
There are various types of art available to add to your investment portfolio. Art can get classified in a variety of styles and media, such as:
- Mixed media
Glassblowers and production potters don't get considered artists, as there's no uniqueness in their produced work. However, some of them will use these media to create unique art, gain popularity, and call themselves artists.
Originals vs. Copies
Even though original artwork is valued more, a copy can also be of worth. Here's how to determine if your copy has an appreciating value:
- Originals: Original art is in a class by itself and is what investors buy. The original's rarity justifies high prices.
- Prints: Considered works of art, prints are copies and can have value. Prints have clarity, quality, and visual impact, rivaling the original through the various ways they get produced. Investors buy prints when they're starting their collections and have limited funds. Not all prints appreciate, so look for limited edition prints where the artist has permitted a certain amount printed. Artists will sometimes autograph a print in the margin, thereby increasing its value.
- Reproductions: Reproductions are also known as posters, are run with unlimited printing, and are copies of the originals. These aren't worth much and are great for budget investors.
- Gicleés: A gicleé is a print type and is the highest quality of print that you can find. With an enhanced resolution, they get priced higher. Gicleés often get classified as "museum quality," and dealers will give an authenticity certificate.
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How to Choose and Buy Art
If you've decided that investing in art is a way to add value to your investment portfolio, you need to determine how much money you have to spend. Like all investments, there is the risk of losing money, so be mindful that whatever artwork you choose to buy, there's a possibility that the artwork depreciates.
Research art by reading books, visiting galleries, speaking to curators, etc. Curators are knowledgeable and are always eager to discuss art and answer your questions.
To familiarize yourself with how the market works, browse online auction houses like Sotheby's and online sites like Artnet. For up-to-date pricing, the Magnus app provides information to potential investors. All you have to do is get a photo taken of the artwork you're interested in, and they'll give you the details.
Your next step in choosing and buying art is getting the artwork you're interested in appraised. Getting artwork appraised by a professional appraiser will determine its quality.
To buy artwork, you can either go the costlier route and purchase it by yourself or go via an online marketplace to buy shares in the artwork. Whichever purchasing route you choose, ensure the dealer, gallery, or investment firm is legitimate.
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If you're a newbie art investor, consider using Masterworks, as they do most work for you. Masterworks has the following process:
- Masterworks buys the paintings
- They then sell shares to investors
- They will keep the investor updated on their investment as it progresses
If you choose to use Masterworks, note that you won't own or store the artwork. Instead, you and multiple other investors will buy shares in an art piece of high value. As they vary according to the type of investment offered to you when you invest, there are no minimum investment amounts.
Alternative online marketplaces include the following:
- Saatchi Art: A platform where you can browse and purchase online directly.
- Maecenas: A platform where you can buy shares in paintings.
The Benefits of Investing in Art
There are various benefits of investing in art, with the main benefits being personal satisfaction and the financial benefits it provides as an artwork's value appreciates over time.
Other benefits you can look forward to include:
- An art collector can enjoy their investments daily as they see their investments, whereas owning stocks and bonds aren't available to view in the flesh.
- When an artist retires or passes away, their artwork will increase in value.
- Investors can loan their artwork to museums, thus enhancing the investor's prestige and reputation. By doing this, they promote artists continually and improve their collection's value.
- Financially, art can be a good investment as good quality art often appreciates and is independent of traditional economic measures, such as inflation.
- As an investor who invests in certain artists only, you can often get invited to their exhibits. Galleries promote sales, and investors can meet artists and socialize with fellow art collectors.
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Investing in Art Is Not for Everyone
Investing in art can be profitable, but there are no guarantees that the artwork you buy will appreciate. To achieve success, you need to educate yourself and do a lot of research. You can accomplish this by going to galleries, museums, and auctions.
Investing in art also means you can't think and make decisions with your emotions, as many collectors claim that collecting art can be emotional. Instead, choose with an investor's mind and a collector's eye.
It can get expensive investing in art and take a lot of work, but it can be a great benefit to diversify your portfolio if you're an art lover.
Look out for scammers, as the art world is full of scam artists. Ensure you do enough research, and if you're unsure, get help from a professional.
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Get an Expert’s Help
It's easy to buy artwork that's appealing to you, but you need some expertise in purchasing art that has the potential to increase in value. Several art investors consult with art investment professionals before they make any purchase.
Determine how much you can invest before purchasing any art. Like any other investment, there are risks involved, and there's no guarantee your purchased art will appreciate.
Art isn't just an investment or hobby for many people, but rather, they see it as a passion. Art is a gateway to experience beautiful works from various countries, multiple disciplines, and different times. If you're interested in investing in art, take a step into the wonderful world of art and enjoy your new journey.