Virginia Wilson, an art consultant from Australia, says, “Art has been an attractive investment for centuries and is becoming increasingly recognized as it has outperformed more conservative investments over the last few decades. It is an alternative investment earning capital gains rather than a dividend.“
Collecting fine art used to be a luxury reserved for the extraordinarily rich and well connected. Today, however, collecting art is an investment strategy that, with a little interest and research, can prove to be both enjoyable and lucrative. Not long ago, an article in Forbes reported that, over a number of different time periods, art outperformed the S&P 500. Even in the months following September 11th, amid recession and war, art auction houses saw new sales records set for more than thirty artists. A study by New York University, which examined twenty seven recessions and four wars, concluded that art values tend to hold up well during periods of economic difficulty and that art indexes always outperform major stock indexes during times of war.
Peter Scott S. Sahlman, head of Sahlman Fine Art Consulting, has advocated that art be recognized for its potential as a balancing or stabilizing asset, in addition to its ability to provide aesthetic pleasures. Sahlman states, “Buying fine art can balance one’s securities, real estate, bond, and hedge fund holdings. When fine art is purchased by a shrewd buyer, it can stabilize the volatility of one’s entire portfolio and position an art collection for upside appreciation”.
”Naturally, investors intrigued by these possibilities should also keep the old adage “buyer beware” in mind. Here are two important concerns to keep in mind when buying fine art:
• Anything that can be said about art as an investment applies only to genuine art and not to fakes or forgeries. Investors should ask their dealer or gallery for certificates of authenticity or to speak with the artist directly, if he or she is alive.
• The liquidity of art – or, the ability to convert it directly into cash – is often limited. However, many investors over the years would attest that such risks are manageable.
When buying art, there is one truth that above all others serves to make the risks worth taking: If you buy something because you love it or for its beauty or personal appeal, you can never really lose.
Beware of these scams:
1. Insiders running up the auction record to inflate prices;2. Antiquities dealers who don’t have clear title to what they’re selling;3. Posters sold as original prints;4. Prices temporarily inflated by the hype du jour;
5. Conventional frauds such as forgeries and faked signatures.
The Artist’s Role within your Investment Strategy
Of course, the artist plays a vital role in the scope of a work of art. Yet, in addition to the quality of the piece that an artist creates, other factors also carry weight in terms of the artist. He or she is key to your art investment strategy. Primarily, the basic factors including your collecting goals, enjoyment for a piece, interest, and quality should dictate your decision to buy a work of art. Make certain that the work meets the standards for presentation and condition and then, assess the other criteria.
Diversification is a word heard often in relation to investing. Most financial advisers would advise that a well rounded portfolio is the key to financial success. In your financial investments, you should ideally carry equal parts of high risk, low risk, long term and short term investments. High risk investments tend to carry the greatest reward when they do pay off. However the likelihood of loss is great. Similarly, low risk reaps lower rewards, but you will usually at least get your initial investment back.
Most art investing deals with long-term. This is simply because are serves a purpose: to be enjoyed. It is not a fast moving, liquid investment because people tend to hold on to their artwork until they find another they like better. For many people, buying and selling their collection is less about art investing and more about redecorating.
Long-term investment pieces are usually those with a great deal of history behind them already. A painting that is 100 years old and worth $50 million is not likely to double in value in the next year. These artworks generally carry an annual return on investment of 10%-15% per year. For art investing purposes, great works that are this mature already should be held long term to realize any real return.
Short-term art investing is a little more difficult than long-term is, but it is possible. The reason it is sometimes hard to do is because there may not always be a buyer for a piece you are looking to sell right away. For this reason, it is best to choose lower priced items and acquire a large number of them. When it comes to art investing, and really any type of investing, it is generally easier to move lower priced items. If you are in the habit of purchasing paintings of $1 million or more, your short term investments should be in the low thousands.
It is very important to be discerning in your art investing, whether shopping for long or short term investments. Prints often make good short term art investments, especially if you can purchase several copies for the price of one long-term investment purchase. Be sure that the quality is good, each one is numbered and signed, and that there are certificates of authenticity for each. Just because short term art investing involves a lower price range of items does not mean your standards should be lowered.
Commonly in art investing, Long Term purchases will carry a lower risk than Short Term. The items you invest in for a Long Term should be those that have already proven to be quite valuable, so their value is somewhat predictable. For example, Vincent van Gogh painted Irises in 1889. In 1987 it was sold for $54 million dollars. At this point, twenty years later, van Gogh is still dead and not planning to come back anytime soon and take up painting again. Therefore Irises is still just as valuable as it was in 1987, and most likely more valuable now. This painting would make a very good low risk, long term art investment.
How to Sell Art
Like most investments, the value of your art will fluctuate. If you are considering selling your piece soon, have it appraised by a respected and qualified professional. On that note, never sell anything to the person who is appraising it. You can never be too careful, as even the most reputable appraiser could underbid you if you seem eager to sell. Instead, tell them you are merely curious for insurance purposes. That should yield you the most honest dollar figure.
Once you have an idea of what your art is worth, you can establish a minimum asking price. Whether you are selling your artwork in an auction or directly to a private collector, you need to have a minimum figure in your head. Auctions are best, although the auction house will retain a commission for selling your piece, so consider that when you set your price. However, an auction could result in more money for you, depending on who is attending and what the demand for this type of piece is at the moment. Remember, always sell to or through a reputable source. As you establish contacts through your art collecting, so will you get a good idea where your art should be sold.
Art collecting can be a profitable venture and a great way to diversify your investments. However, you should be mindful of the fluctuating art market, as well as the importance of preserving a piece in its original state. Scams are easily preventable with a little research and some common sense. With careful consideration, rational spending and a true appreciation for your collected works, then there is no reason why you would be disappointed with your art investment.