The art market is booming, and industry statistics show the market is worth over $64.1 Billion. While investing in art requires a significant investment, it’s not correlated with bonds and the stock market. And that’s good news for any investor looking to diversify their portfolio. Regardless of how the financial market performs, the art market doesn’t fluctuate much.
Investing in fine art involves more than finding the perfect piece to grace your walls. You have to understand how to approach the art market and find the best fine art to invest in.
1. Art is Different from Ordinary Investments
There are fundamental differences between a regular financial asset and fine art. The differences include transaction costs and final payouts from the investment. Most pieces of art pay emotional dividends rather than financial dividends. Therefore, the value depends on personal taste, unlike the returns you gain from stock investments or real estate property.
Trading pieces of art comes with significant transaction costs. Typically, an auction house can charge about 25% of artwork sale price not exceeding $200,000. On the other hand, more expensive pieces attract a 12% fee.
2. Differentiate Originals from Reproductions
When looking for affordable art to invest in, you may visit an art gallery and find a spectacular piece, but you can’t justify the price considering that other works from the same artist cost less. In most cases, these pieces are giclées. This is a machine reproduction with quality standards that can rival the original piece. While reproductions are spectacular pieces, they’re still copies.
Before you invest in fine art, it’s important to understand that the rarity of any artwork determines its value. Therefore, an original is always worth more than a reproduction. Sellers from an art investment platform may provide certificates to prove authenticity, but the value is a tiny fraction of what an original would fetch. However, if an authentic reproduction comes with a handwritten signature, you may reap more benefits from the piece.
3. Evaluating Art Investment Opportunities
Art is quite a diverse industry, and it’s vital first to understand artists, markets, and management of different works of art. Ideally, you should first study artists and understand their brands to determine if the growth is sustainable and profitable. Try to find types of art that have been sold multiple times and use them to benchmark the pieces you intend to trade. Typically, you will hold onto art for several years; therefore, it’s prudent to understand how similar pieces perform in the market. This can help you get a rough estimate of your potential returns.
Always make sure there is sufficient demand from collectors when choosing pieces from a particular artist. If collectors are constantly seeking artwork from a certain artist, the value of those pieces is likely to appreciate steadily. Most importantly, it’s best to consider the costs of managing certain artwork.
4. Art Requires Maintenance and You May Have to Hold for a While
Unlike intangible investment assets like stocks, physical art is a tangible, hard asset that occupies space. Therefore, proper care and maintenance are critical to ensure value retention and appreciation. If you keep art in your home, you must consider factors like humidity, temperature, sunlight, and other aspects that can damage your collection. However, you can partner with a storage firm with temperature-controlled facilities for art storage.
Even after acquiring a great piece of art that is likely to fetch good profits, the art market tends to be relatively illiquid, unlike when you invest in stocks. Therefore, you will have to hold for a while before selling it at a good price.
5. Understand the Blind Spots
While learning how to invest in the art market can be lucrative, the industry often has certain biases unrelated to artistic merit. For instance, paintings by Peter Paul Rubens often auction for eight figures, while some drawings from the same artist trade for five figures. A portrait by Alberto sold for $1.4 million, while his bronze sculpture auctioned at $140 million.
However, the market biases are not static, and they can change quickly. Therefore, whenever you come across early works from an artist trading at premium prices, go for their later work. Also, if pieces from a certain period fall out of favor with art collectors, they are likely to make a comeback in the future.
Conclusion
If you want to get good returns from art investments, it’s essential to understand the market. Ideally, it’s best to treat your art collection as an alternative investment. Ultimately, art investment isn’t a get-rich-quick scheme. Purchasing art means you are willing to wait for several years before selling for a profit. However, it can be a great investment if you research the market to find profitable pieces.
