An artwork costing around thousands today might be worth millions a decade later. This makes it one of the many commodities you can put your money into to diversify your investment portfolio. As a tangible non-liquid asset, a highly-priced piece of art by a renowned artist can fetch higher sums over a longer term. However, since the market is volatile, returns may be high at one point while they may just sink at the other.
Despite that, investing in art is a great choice for those who have the luxury to spend on it, as well as the patience to see the value of their possession appreciate gradually. So, before you spend your money on such collectables, here are a few important tips to consider before investing in art.
Gather knowledge and information
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The most important first step before you start investing in fine art is to gather information on the subject. This means, knowing about the different styles of paintings and acquiring the ability to differentiate one from the other based on the information. How to do that? Read prominent publications on art, visit galleries, museums and events such as the Art Basel, the Venice Biennial and the Hong Kong International Art Fair. Visits to such exhibits will help you develop a taste for art and understand the nuances.
Once this is done, you will possibly be able to understand how movements like Modernism, Cubism, Expressionism and Impressionism, among others, have influenced the arts scene over the years. Similarly, knowing about the oeuvre and personal styles of masters such as Da Vinci, Rembrandt, Van Gogh, Monet and Raphael will help you arrive at your choice of art of exceptional value and renown. If you can identify a Pablo Picasso painting just by looking at it, you’re all good.
Even if you don’t turn into an expert, you will certainly be able to trace the developments in the contemporary art scene. Whenever in doubt, it is best to read more about the artist and gather any information about their work before you choose to buy one.
Art is highly subjective. Its worth changes with the shift in tastes of society. What is in trend today may not be so tomorrow — something that may happen with contemporary artworks. So, you must be ready to confront a situation where the value of a highly-priced artwork in your possession has slipped many notches lower. Loss of value aside, the risk of theft and damage is also very high in the case of rare artworks.
Factor in maintenance and other costs
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Forget about the price; merely the cost of preserving a prized artwork will require a fortune to keep in a private collection. Owners of such treasures must take into account the storage, which means providing facilities to maintain the right temperature, humidity and light at all times to ensure that the piece remains in its finest condition.
Insurance is another cost to consider before you start investing in art. Though it may be not as expensive when compared to valuables such as jewellery, it is still an expense that needs to be taken into account. There is, however, an advantage. Those who are specialists in insuring artworks can also give the best advice on the painting’s upkeep based on your location.
The more the painting’s free-market value, the greater the risk of theft. Thus, money will also have to be spent on getting the highest level of security for highly valuable pieces.
Moreover, since everything (whether you like it or not) is taxable, be ready to pay taxes on artworks as well, and they are generally high. However, it depends on where you live. For instance, there are no taxes on the import or export of artwork in Hong Kong. On the other hand, China imposes more than 30 percent tax on art imports.
Buy from credible sellers
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One of the major problems that the art world has been consistently battling for decades is the business of fakes. Many have spent fortunes on works of art believing them to be originals, only to find later the true value and that they were fakes sold by scammers. Knowledge of art might help a potential buyer in identifying the true worth of a piece but the risk still exists. One way to avoid getting duped is to buy artworks from renowned names, including auction houses such as Christie’s or Sotheby’s, and international art fairs, art galleries and museums. It must be noted that auction houses do have their own premium over the auctioned price of the artwork, which should be taken into account before you plan on buying a classic painting.
Consult an advisor
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While your knowledge will hold you in good stead, it is best to consult a professional art advisor for an in-depth understanding of whatever you are going to buy. An expert always knows the actual value of an artwork and will be able to give you the necessary third-party take to help you get your money’s worth. Risks, whatever they may be, will be clearly presented before you for consideration. You would also be informed about how to diversify your investments, which goes beyond merely acquiring invaluable art.
Know what you want and how much you can spend
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There are basically three types of art you can purchase — originals, prints and reproductions — and its resale potential is also determined by which of these categories it falls in.
The originals are, as the name suggests, of the highest value. Then comes prints, the best quality of which is known as giclée (zhee-klay). The lesser the number of prints, the higher the value. The value of a giclée may also increase if it bears a fresh signature or an original drawing by the artist in its margin. However, the giclée may not have a resale value. On the other hand, reproductions are mass-produced and are essentially of little to no value.
How much money you can spend, including additional costs that may accrue and losses due to a fall in worth, will have to be factored in the type of artwork you would want to buy.
Do not invest a lot of money
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Even if you have a lot of money to spare, don’t go overboard with art purchases. No matter the potential, the return on investing in art isn’t big enough to act as a cushion in case other investments go wrong. Art is merely an additional investment, not the main one. So, putting a lot of money into art is not the right thing to do.
Plan your collection
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What happens to your collection when you are gone? When your heir(s) inherit the paintings, they also inherit the taxes levied on them. The best way to avoid taxes, in countries where such a charge is applicable, is to either give the collection to a museum or put it in trusts. Museums are usually ready to accept art collections but this depends on the worth of pieces in the collection — both monetarily and artistically — and the museum’s own needs. It is best to consult a lawyer to understand how and which trust would be the best choice or other ways to save taxes while preserving the collection.
