Investing in Art: Is it a Sound Investment?

You might have heard about the record-breaking sale of  da Vinci’s ‘Salvator Mundi’ for a staggering US$450 million back in 2017, making it the most expensive artwork ever auctioned. Maybe, it got you thinking about the investment potential of art. While investing in fine art can fetch a pretty penny, there’s a lot to consider before you begin.

How investing in art is different

Unlike trading in shares, where the shares you own in Google, for example, are identical to the Google shares I own, art is, by its nature, unique. Further, the share market is highly regulated, and there are strict rules on the disclosure of information. Conversely, the art market is lightly regulated and access to insider knowledge is highly prized and may be key to making a good return. For example, knowing that an artist is about to have a major retrospective by a large gallery may allow an in-the-know investor to take advantage of the increased attention.

What to consider before investing in art

If you’re considering investing in fine art, you need to be prepared to do your research. Unfortunately, the art market lacks a good index, and the few that exist, such as the Mei Moses Art Index, don’t necessarily paint a complete picture. Although, you might benefit from sites such as Artsy and artnet, which focus on art market news and even provide their own auction platforms.

Also, compared to other investments, individual artworks are resold quite infrequently. Art can often go decades between auctions, and that’s just referring to the artwork that is resold. It’s estimated that as few as 0.05% of all paintings are ever resold. The market is also quite crowded at the top, with only a handful well-known artists dominating the sales. In 2017, over 52,000 individual artists had their works appear at auction, but just 1% of those names represented 64% of all sales.

What to look for when investing in art

When considering a painting as an investment, look into the artist. How have their other works fared? What about the particular period of their career that the piece is from? Is the style becoming more popular, or less? Trends come and go, but many artists are simply forgotten as time marches on. So, choosing piece that you think will remain popular is important.

Might be best to mix it up

Diversification might help here – different styles from different artists may help to ensure that at least some of your pieces might see a good return. Another strategy to consider is buying work from new and emerging artists.  The chances of you making a return might be lessened, but the individual pieces are likely to be more affordable, allowing you to build a diverse portfolio.

Related article: To Diversify Or Not To Diversify?

So, should you invest in art?

Access to information is key to making a return on your investment, but if you’re not already deeply involved in the art scene, be prepared to pay for it. Dealers and advisers can help you make wise purchases, but this is likely to cost you. Auction house and dealers’ fees will also eat into your profit, and can vary wildly, from as low as 5% to as high as 40%. Security, insurance and taxes are also important considerations. Also keep in mind that while you are waiting the years or decades to make your return, your painting won’t be generating any income. Unlike investing in certain stocks, there are no dividends for holding fine art. But, a beautiful piece can provide many years of enjoyment.

Still unsure if investing in art is for you? Check out our article on the pros and cons of investing in collectables. 

Cover image source: Anton_Ivanov/Shutterstock.com

Originally authored by: Tim Smith 

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