Many long-term investors are always seeking new ways to diversify their portfolios, so they invest in different and even exotic asset classes. Recently, the fine art market is starting to gain serious traction as the next exotic asset. Art has the potential to enhance the decor of any space while also appreciating in value as it hangs on your wall. One of the biggest issues that people have when considering investing in art is a lack of knowledge. There is the misconception that investing in fine art is a luxury for the wealthy and novices can get ripped off. However, these are concerns that you can resolve with quality research and an understanding of the world you are getting into. It is so crucial that you educate yourself on fine art if you plan on investing.
As with any asset class, an investor would start with due diligence. Art is no different, so you should first start by becoming familiar with the various types of art. Most beginners automatically think of paintings when they think of fine art, but here is a plethora of other media, styles, and classifications. Some of these would include drawings, photography, sculptures, and even videos. Another aspect of fine art value is scarcity, or the rarity of the work of art. An original will always be worth more than any reproduction. Prints are merely copies, but they can also hold a lot of value. There are a variety of techniques that go into producing a print which gives it the quality, and visual impact that rivals the original. For example, a giclee is a kind of print and is the highest quality of print available. These are much more superior to other prints and it shows in its price. Some dealers even classify them as “museum quality” and will give you a certificate of authenticity.
Having done all the research possible about the artist or style of art you are targeting will certainly help you narrow choices for your investment. Once you buy a piece of art, it is your asset to control, without having to trust others to manage your investment; you have the luxury of controlling all aspects of your art, like proper maintenance of the item, until you are ready to sell it.
The big bet with fine art is, of course, the appreciation over time. With stocks, the underlying company’s actions influence its price, which can be volatile. However, the hope with fine art is that it appreciates at a steady pace over time. If you choose your fine art wisely, your art will likely be worth much more than the original price you paid.
It is important to be aware of some of the disadvantages of investing in art. For starters, there are barriers to entry. The most common barrier to entry in the art world is, as mentioned before, a lack of knowledge. Similar to any stock, you have to research different types of fine art and learn about the market. Since the value of fine art can be largely tied to subjective cultural tastes, no matter how much research goes into your selection, it is possible that the art and/or artist does not appreciate in value as one had hoped.
You should also note that art is not a liquid asset, so to get the best price for your piece, it will take some time. As stated previously, art generally appreciates over time. However, there is no guarantee of this happening for every piece you own. New or even established pieces and artists can lose popularity just as quickly as they gained it.
Fine art has the potential to be a useful tool to diversify other assets you hold. Any potential return on investment may take some time depending on the pieces in your collection, but with patience, hopefully price appreciation will occur.