Friday, February 12, 2016

The Art of Art Investing

   Most often when you think of property ownership you think about buying a home. There is also the investment in commodities like gold coins  or maybe some barrels of that black liquid gold. There are however other options that fall in yet another category. In other times you could be considered an art collector which usually involved your passion for art and  was typically thought of as a  hobby but now you can consider it investing in art. Investment means that there is money to be made with the right art purchase. Collectors have created a dynamic supply and demand system and like property the longer you own your fine art piece the more it appreciates. With today's prices you may think that paying millions of dollars for an art piece you have no room for making money but the price of art just keeps going up. Art now has gone the Wall Street route and like REITs (Real Estate Investment Trusts) people can buy into Art Funds whereby investors buy into a fund which buys and sells artworks and investors share in the profits.
   When you think about money making  artwork you may think about the Masters like Van Gogh, Cezanne, Kandinsky or even most recently Picasso. However, what most people don't realize is that art doesn't only include painted canvases, it includes other forms such as sculptures, photography, glass blowing, and many other creative outlets which are often overlooked by beginning investors. With sculptures the investment may not be those investors just starting their collection as these pieces can run upwards of $20.000 and move up from there. Your best bet for a good investment will most likely be in photography and fine art.
   Let's first look at the difference between Wall Street Art funds and owning a piece of artwork. The asset itself has an intrinsic value that in reality is not valued by competing financial market prices. When one person decides to buy an artwork there can never be a bad trade or flash crash that will bring the value crashing down. With an artwork in your possession, you can be sure to protect it physically with proper care and proper storage. On the other hand that is not the case with a broker or financial adviser owning an art piece although it will be kept safe, the enjoyment is only in its investment. The potential for art to appreciate simply with the passage of time is a guarantee because as art ages it just keeps getting more valuable due to it's creation time and it's one of a kind nature.
   Even though the Art Fund industry is only about a decade or so old you can expect returns in the 8% to 12% range minus fees with a five year investment period. Art however can be a high risk investment and past performance with one fund cannot be indicative of any future returns from other funds. Most indications from economists of art investing has come up with a long term return in the 5% range.  The way to make a profit on art is to buy the art from private sales and not from auctions, art dealers or art galleries. The return on investment in these kinds of purchases brings in a much higher return sometimes in the 18% to 20% range with Art Funds that work in this fashion. You have to do some research and look at the the art fund financials.
   When it comes to art it's not always a win-win situation because art is not a liquid asset as are stocks and bonds. You can't just do a few clicks on your computer and sell the asset, it takes time and effort to liquidate and get a return on your investment. Another drawback about art is that you must keep it safe from any damage which usually includes insurance. Another negative aspect is that you need to find the right investment which takes time and very careful research which is a luxury that is not readily available to everyone. Not only that when it's time to make some money on the investment, it can't come in a rush as most people who sell in a rush, sell at a discount.
   To enjoy a good investment it must be something that you will genuinely like. Because art is unpredictable there is no guarantee that it will appreciate after an allotted amount of time. When someone says that five years is usually an optimum time for a substantial return on your investment is not a guarantee due to some unforeseen market conditions. In the market crash of 2008, contemporary art prices fell by 50%. Although an art collector or art dealer doesn't have to worry about financial market conditions the prices are affected by the art market.
   As mentioned earlier, insurance is a must and an art investor has to protect and store their asset and must read the fine print when buying insurance. Some policies do not cover damages caused by wildfires or water damage from seeping pipes so a standard contract must be thoroughly read and if extra coverage is needed that has to be considered. When moving your art you must consider the proper care and packaging involved in keeping it safe because it could result in the damage or destruction  of your art.

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