By: Jeff A Hardy. Art News and Info. 2nd Jan. 2010.
You are an admirer of fine arts. Do you collect handicraft, paintings or sculptures or any other artworks just to get an undefined satisfaction or as an investment too? Well, art as an investment has become popular in the recent past. However, there are supporters as well as opponents of the trend who give arguments for and against investing in art.
What’s good in Art Investment
Uncertain stock market returns, interest rates at their lowest in decades, and shaky property market has lead people to find alternative investment options- investing in art is one of them. The rise in demand and consequently in prices, is definitely a good news for people who collect art. Although there’s no certainty that prices will continue to rise, at least art will give pleasure and an emotional dividend by giving the chance to call oneself a collector. From 1875 to 2000, art has outplayed fixed income, but has been defeated by equities. However, in the past 2 years or so, in the wake of stock market losses, art has surpassed equities. Reports say that global art market avoids crash, even in times of economic downturn.
Why Art Investment is Bad
Art market is illiquid. Buying and selling art works is not so easy as the trade shares. Art market is also non-transparent and unregulated. The history of ownership and condition of a piece has to be checked before investing money. Art goes in and out of fashion and the prices may move up and down very quickly. If selling art, one has to pay many taxes. Critics argue that art can’t be considered as financial asset as it disregards traditional benchmarks of financial analysis. Price determination is at the mercy of erratic public taste that follows no financial logic. Works of art don’t generate any income though they lead to storage and associated costs. In short-term, market volatility is relatively high when compared with other classes of asset.
How to do Wise Art Investment
Art investment is risky only if the investment period is too short. Long-term investment, say for 10 years and more, gives good annual average returns. The only prerequisite is to invest in high quality art. It’s better to deal with reputable galleries or dealers and invest in something you like & won’t mind keeping it for a few years, rather than something you don’t like but just want as an investment. If you are a novice collector, gather knowledge and train your eyes by visiting art fairs, galleries and preferably, student shows. Get lots of information from Internet. If that doesn’t suffice, hire independent art advisers for selecting and managing a collection. Some of them work at private banks. Galleries too offer advisory service as a sideline to their main business. If you sell some art works, consult tax advisors about how to save on it. If a couple buys the work, its good to invest in the name of the person in the lower tax bracket. Generate income from artworks by lending them to galleries. UK-based Fine Art Management Services launched Fine Art Fund, a private equity-backed venture aimed at pension funds and university endowments. It hopes to raise $350 inn, locked in for 10 years, to invest in a portfolio of top-quality art. The fund managers are banking on those investors who have seen some of their biggest holdings go down as the value of a quality arts will never go down to zero. Fine Art Fund also plans to solve the problem of lack of dividend income in this type of investment by renting out its art. This can be taken advantage of by wealthy private investors.
By: Jeff A Hardy