Investing in fine art is really a good idea, but you must be willing to go beyond your comfort zone and research. The best thing about fine art is that it can do more than brighten a living space. Many investors buy art and paintings with a focus on diversifying their investment portfolio.
How art investments work
Just like bonds and stocks, a fine piece of art or collection is likely to increase in value over time. If the artist goes on into a successful career, that means that the value of their works will increase. That is why it is vital to research the artist before buying an expensive art.
But you must keep in mind that art is a long-term investment because profits are not guaranteed overnight. You must be a patient investor and think long term giving your investment a time window of 10years or more. The best thing about the fine art market is that it goes with its own rules, unlike stocks and bonds.
For instance, even if your stocks arent doing well, your fine piece of art will be doing excellent. That makes fine art a good investment for the savvy person who wants to diversify their portfolio at a lower risk as it continues to appreciate over the years.
However, art can be risky. Every artwork is unique, and still, the market has its ups and downs. It can be challenging to determine the actual value of a price of fine art, so the investment depends on the artist’s reputation and the willingness to assume some risk. Enlisting the help of a trustworthy and reliable fine art dealer helps you avoid making costly mistakes.
What to look for when buying fine art
- Originals- these are one-of-a-kind artworks sold at the highest price but with significant payoffs.
- Prints are affordable but have no guaranteed profits. They are similar to the original, but one print from a limited number of editions has more value than a print with mass copies floating around.
- Reproductions refer to mass-produced copies with an unlimited run. They are the most affordable but worth the least.
What you should know before making an art investment
Make it a fraction of your portfolio
For many investors, fine art makes only a tiny fraction of their diversified investment portfolio. You will profit over time but will not get a massive payout from art alone, so it’s best to have other investments in place. You should not rely on art investment as a steady income. Think of it as an extra, just like a real estate investment. Also, remember that you will be charged tax on any gains since art is considered a collectible.
Art is illiquid
Remember that art is a nonliquid asset, so it is hard to convert it into cash right away; unlike other liquid assets such as bonds, stocks, and savings accounts, you can convert into cash right away. Art is just like real estate. Although it holds significant monetary value, it may be challenging to sell. Your best bet for selling art quickly is an auction house but with hefty charges. Again, there is no guarantee that selling will earn you a profit.