Investment in Art
Today, we find that an increasing number of individuals are looking at alternative investments, which provide them with a diversification away from a particular asset class. People are willing to invest and looking for areas other than the stock market for investing. Investing in the vintage wine, coins, stamps and Art, is now an indulgence which gives them an opportunity to cash in on their hobbies, without having the level of expertise that is required for other direct investments.
Art is being incorporated into the investor's overall asset allocation decision. The art scene around the world is growing significantly. With more and more investors looking at art as an alternative asset class and a store of a long term value, average annual art valuations have outpaced average annual stock market valuations by more than three times since 2000.
Now this market is much stronger. In terms of returns one can see the market price has gone up four to five times, in some cases ten times in the past four years. With a sharp rise in the value of art and a comparatively disappointing performance in the stock markets and the real estate, individuals with money are now tapping Art as an alternate investment avenue.
This is the reason why Citigroup and others are buying paintings as an investment for their very important private-banking clients. Wealthy clients who switch to art collection, as a way of diversifying investments, can find it an unexpectedly pleasurable experience. Unlike incase of stocks and shares, investors can literally admire their expensive investment.
Risk
"Art" is not everyone's cup of tea. It varies to great extent depending on public tastes and other factors. Hence, they are considered to be high risk, speculative investments. Also art cannot be resold quickly for a profit. In other words, it is not a very liquid investment to earn reasonable amount of profit; one might have to stay invested very long period of time. One should be careful while making investment in this asset class. Art is illiquid; it needs maintenance, storage, security, and it doesn't give dividends, bonuses or income.
Guidelines for investing in Art
- Educate yourself by reading all relevant data you find on your specific area of interest. Read up from books, websites and trade journals. Take the advice of other investors or experts in that field. Make an informed investment decision.
- To avoid possession of a "fake" piece of Art, attest the authenticity of the item by obtaining a written certificate or appraisal.
- Avoid investing in cheaper second, third grade art works. The top quality products may be more expensive but are sure to appreciate in value and fetch a good price even in difficult markets.
- Find a dealer who has enough knowledge about the market trends, quality and prevalent pricing in this field.
- Limit the field of your investment collection because holding too many works of art adds very little in terms of incremental diversification.
- The piece of art that you invest in has market value and hence must be insured. The item must be covered in the event of fire or theft.
- Art items are fragile and they require maintenance. They require proper environmental conditions and are pretty costly to maintain. It is very important to preserve them in their original state because the value of a poorly maintained artwork diminishes rapidly.
- To avoid high level of risk do not exceed a percentage (between 1 to 15 per cent) of such investments in your entire investment portfolio.
- Purchase from recognized dealers and auction houses only.
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