The art world is a bustling place these days. Digital art sales – especially those involving NFT (non-fungible token) art – have generated a lot of buzz. But even before NFTs entered the scene, art auctions have often left many of us in awe of how much some pieces can fetch in the market.
To be sure, not all artwork is priced in the millions. There are pieces you can buy for considerably less. Still, the big-dollar headlines may have you wondering: Is art a good investment?
If you’ve read our alternative investments explainer, you know that art is a type of alternative asset that some investors buy to further diversify their portfolio – outside of the traditional financial markets.
For instance, you don’t have to think about where to physically place or how to store your stock holdings. Artwork like paintings and sculptures, on the other hand, needs a home and some tender loving care. (And of course, sometimes there are costs associated with that, like maintenance and storage fees.)
In this article, we’ll sketch out (pun intended) several important points to keep in mind if you’re intrigued by the idea of buying art as an investment.
Investing in art requires a bit of knowledge and research. If you’re going to put in the time and effort to get to know the market (and plan on dropping some serious money), it would help if you actually like art.
Otherwise, this process wouldn’t be any fun! Sure, the idea of “further diversification” sounds good, but there are other types of assets that could help you with that.
If you do end up buying something, hopefully it’s because you love the artwork in and of itself – regardless of its investment potential. In other words, if you’re going to buy, buy something you like because you’ll probably have to hold on to (and look at it) for a while.
Keep in mind, too, that art investing isn’t something you should jump into at the spur of the moment. You’ll want to take some time to educate yourself about the art market and its major players – artists, dealers, auction houses, art advisors, etc.
And perhaps more importantly, you’ll want to figure out your own taste in art and what appeals to you.
Because at the end of the day, whether we’re talking about collecting art as a personal hobby or as an investment, we all want to surround ourselves with pieces that speak to our aesthetics – that bring us joy. Isn’t that what art is all about?
When it comes to developing your eye for art, here’s a pro tip from Monica Heslington, head of the Goldman Sachs Family Office Art & Collectibles Advisory:
“If you’re interested and curious about collecting but don’t have any experience, start off simple. Visit an auction house. Art fairs are a good option, too. Resist the urge to buy anything until you’ve racked up some hours in fairs, museums and galleries. The idea is to develop an eye for what you find appealing. A simple trick is to take pictures of all the things that you like and then see if any themes or commonalities emerge.”
Investing in art also requires patience. Some experts suggest that you may need to plan on staying invested for anywhere between five to 10 years or more.
If you’re buying art as an investor, know that you’re likely going to have to hold on to your art asset for a while. It’s not like flipping a house and hoping to turn a quick profit.
Even if you’ve bought a piece that’s expected to appreciate, it’s unlikely to happen overnight.
This brings us to another important point to remember: There are no guaranteed returns when it comes to art investments because pricing can go up or down at any time.
Sure, the sale of a few high-value art pieces may grab all the headlines. But what you may not see are the hundreds of pieces that have little or no appreciation. So it’s possible for your art investment to end up being worth less than the original purchase price.
Good to know: Even if your art asset has appreciated, when you’re ready to sell, the potential commissions and fees could eat up as much as 30% of the value of the piece. In this way, art can have a much higher appreciation hurdle than most other assets.
Some seasoned investors look to invest in art as a part of their diversification and wealth management strategy. But it’s important to understand that investing in collectibles like art is generally considered a high-risk venture.
You don’t have to think too hard to imagine why.
First, art prices can be unpredictable – for instance, the value of your art asset can go up or down based on a number of factors such as changing tastes as well as the artist’s reputation.
Second, art is considered an illiquid asset since it could take some time before you find the right market and buyer.
Let’s take a closer look at these potential risks.
Broadly speaking, the art market doesn’t move in the same direction as the stock market. This is why some investors look to alternative assets like art for an opportunity to further diversify their portfolios.
But, like the stock market and other assets, the art market can also go through ups and downs. While some art investors might be able to sell at a profit, others might end up losing money in the long run if the value of the piece has depreciated.
It can be tough to predict how much money a piece of art will fetch down the road because there are so many different variables at play.
For instance, an artist’s reputation, buyers’ tastes, and even political and economic stability can all impact an artwork’s value. Supply and demand play a role, too – after all, rare art is often valuable art.
All this is to say: Just because you’ve invested in a trendy piece today doesn’t necessarily mean you’ll make a profit when you sell it later on.
So while art investments could help you further diversify your overall portfolio, don’t count on them for a steady flow of investment income.
One person’s trash is another person’s art. In other words, art is subjective. This is one reason why investing in art can be challenging. It’s often hard to judge an artwork’s fair value.
Transparency on pricing is just one of many ways that art investments differ from traditional assets. Take stocks, for example – you can look up share prices online almost anytime you want.
With art, it’s a little different. How do you know you’re buying or selling at a reasonable price? You may think your oil painting of dogs playing poker is high art and worth a tidy sum, but others might disagree.
If you’re thinking about selling, you’ll usually need to get in touch with an appraiser.
They can offer their expertise and help evaluate your collection. (Sometimes they may even disagree among themselves how much your assets are worth!)
Compared to stocks or other traditional assets, art is an illiquid asset. In other words, it’s not easy to convert a piece of art into cash – even when you’re ready to part with it. It could take some time to actually sell it.
We already mentioned that you may have to get your art appraised to figure out a reasonable asking price.
But another challenge is finding buyers. This isn’t something most of us have to worry about when buying or selling assets like stocks. Trading can happen whenever the markets are open.
That’s not the case with art. Just because you’re ready to sell doesn’t mean someone is ready to buy (in this way, selling art is kind of like selling a home).
And if you decide to sell your collection through an auction house, that process could stretch out the timeline. That’s because auction sales usually take place only a few times per year for each category of art.
Something that first-time art buyers may not know: When it comes to investing in art, buying what you like is only the beginning.
In addition to the purchase price and auction fees (if applicable), you also need to think about the cost of maintaining your art assets. We’re talking about things like framing, shipping, storage and insurance costs.
The handling and care of your artwork will depend on the type of medium you have on hand – oil painting, sculpture, photography, etc.
For instance, if you purchased an oil painting, you have to be mindful of where it’s being hung or stored. Extreme changes in temperature and humidity, as well as improper framing, can spell trouble.
On top of maintenance and storage, you may want to factor in insurance. (This usually isn’t something you have to worry about with more traditional assets.)
If you got yourself a high-value art piece, you’ll want to think about insuring it in case of potential theft or damage. If you’re planning on keeping the artwork in your home, just know that it may be not be covered by your homeowner insurance policy.
Depending on the value of your collection, you may have to take out a fine art policy from an insurance company that specializes in art insurance. And insurance companies may require you to get an appraisal every three to five years (a potential recurring cost to consider).
You don’t need to have an art history degree to invest in art. But if you’re not familiar with the market or if you’re still developing an eye for art, you may want to bring in an expert to help.
“The art and collectibles world is neither transparent nor straightforward, and an informed guide can help you navigate the collecting process, especially if this is all new to you,” said Heslington. “Smart planning can mean the difference between thoroughly enjoying a collection and being weighed down by a collection.”
Hiring an art advisor can be a good idea if you need help with…
Some of the challenges we mentioned earlier, like pricing a piece or finding buyers? A knowledgeable art advisor could offer recommendations and connect you with the right players in the market.
Or perhaps, you’ve been eyeing a particular artwork but don’t know all the questions you should be asking to suss out its investment potential. An art advisor could help you to determine whether it’s the “right” piece for your collection and budget.
Good to know: The Association of Professional Art Advisor is one place to begin your search if you’re looking to hire a professional.
Did you think you could get through a Marcus article without us mentioning taxes? No matter the asset, investing often comes with tax considerations. And art investments are no exception.
Keep in mind that art sales may be subject to capital gains and investment income taxes.
So if you’re planning on becoming an art investor, talk to a tax professional first to make sure you understand your potential tax obligations. As an art investor, it’s important to maintain meticulous financial records (receipts, invoices, insurance, appraisals, etc.) for tax purposes.
So, is art a good investment? That will depend on your personal investment goals and tolerance for risk. As with any investments, it’s important to do your research, ask questions and consult with the appropriate experts when you need help.
“In the art and collectibles world, as in many other markets, information is power. When just starting out, learn as much as you can about the market for the things that inspire you,” said Heslington.
Goldman Sachs & Co. LLC and its affiliates do not recommend purchasing art or collectibles as an investment strategy, provide formal or informal appraisals of the value of, or opine on the future investment potential of, any specific artwork or collectible.
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