Although most people buy art to bring them pleasure, many look to its investment potential. Works of art are tangible and represent a separate asset class, differing from equity, bonds and property.
As in all types of investment there is a risk factor, although as a separate asset class it does add “spread” to an investment portfolio. What then are the risks associated with investing in art?
It should be noted that like property art is an illiquid investment where the value can fluctuate according to market conditions. In this respect the art market experiences its own ups and downs. Alongside this there are associated costs such as insurance premiums and perhaps storage costs depending on the size of a collection. Many will seek the best of both worlds by taking pleasure from their purchases by displaying them at home whilst waiting for the opportunity to sell. Larger portfolios may have to be stored, but in either case, since the object is to sell at some point in time, the purchased works need to be kept in pristine condition, suitably climate and humidity controlled.
Those looking to invest in art need to understand the market and genres of art as well as how best to preserve investments once made.
First and foremost there is a need to determine the market sector in which to invest. Much is made of the sales generated by the big auction houses such as Christies and Sothebys. It should be understood, however, that the bulk of art sales are made through local auction houses at lesser and more widely fluctuating values than those generated by the internationally acclaimed houses. Equally, it’s important to remember that the values of art genres can differ over longer periods. Time should be taken to monitor the movement in prices as a means to identifying the optimum time to sell a specific work of art, therefore investors need to be prepared to hold investments for a number of years. Indeed, Coutts the private bank recommends holding art investments for a minimum of five years on the basis that, “Art collections are built over time and are not recommended for investors interested in quick returns”.
The evolution of the art market suggests that many more sales in the future will be online. This should result in a steadying of art prices for would be investors and offer a more predictable outlet for the sale of investments in due course.
Why therefore invest in art? If you gain pleasure from owning works of art, are patient, interested to learn more about investment and able to match your approach with the degree of financial risk you are prepared to take, then enjoy the opportunity and hope the rewards will follow in due course.