It is easy to understand why investing in fine art can seem such an attractive proposition, as it presents the potential opportunity to acquire something of beauty that you may enjoy looking at, while offering the tempting scenario that it might increase in value while in your possession.
Not all investments offer this enticing situation where you can maybe prosper from something that you derive pleasure from, but even with that to consider, you have to approach fine art investing with the same level of caution and diligence that you would with any other investment opportunity.
Weighing up the pros and cons
One of the first things to consider is all the respective pros and cons associated with investing in art.
As with many investments, there are advantages and disadvantages that you need to consider and put into perspective, so that you can find a balanced argument that either you are comfortable with and decide to invest, or makes you walk away and settle for enjoying art in a gallery rather than trying to own it.
One of the fundamental points to consider, which many art investors consider to be a definite positive, is the fact that there is no underlying financial market which can introduce any major volatility or negative influences to prices.
Prices will rise and fall in line with market sentiment and current trends, but the sort of boom or bust scenario that you can get with some market investments, doesn’t tend to happen in fine art investing.
Another positive aspect to fine art investing is the fact that you can sometimes enjoy physical ownership of the artwork, although some investment strategies may involve a broker storing and maintaining the art on your behalf, rather like wine investing.
Not all artwork will appreciate over time of course, but at least there is the reasonable prospect of that happening if you buy right, but you can say that for a lot of investments.
One of the definite downsides to consider is that artwork is a fairly illiquid, so if you want or need to sell in a hurry, you will either be unable to do so or it will probably cost you to do so.
Trends are an important consideration
Some high-profile artists never seem to lose their popularity but putting those aside and looking at the art market in general terms, you will quickly discover that a lot of art markets are relatively unpredictable and heavily influenced by trends.
The story of the artist who painted the picture is often a strong influential factor when it comes to resale values and price trends, so you should always consider the artist and their story, as well as appreciate the art itself.
What sort of returns can you expect?
It won’t take you too long to find some story of spectacular success on the internet involving an art investment, such as the buyer of the Peter Doig painting The Architect’s Home in the Ravine who paid £314,650 for the artwork, and subsequently sold it just over a decade later for a staggering £7.7 million.
The fact that an estimated 20% of registered buyers at the major art auctions were new clients and the total number of bidders has risen by about 50% in the last decade, tells you that stories of spectacular gains have not gone unnoticed.
Volatility in art markets is generally lower when compared to equity markets so you are potentially investing in calmer waters most of the time. It is also encouraging to note that art investments have shown positive returns over the longer term.
If you look at the figures produced by the Mei Moses World Art Index, which is a general art index covering all genres, returns from art investments have managed to keep pace with the performance of the S&P 500 over the last 50 years, and has even managed to beat it, if you take the last decade in isolation.
As the global art market is still growing and more buyers are appearing on the horizon, especially those with some new wealth to invest such as a number of Chinese investors for example, this is helping to maintain some healthy returns for investors.
Fine art investing is not a one-way route to profit of course and even in a booming market and with a greater pool of willing buyers, there will still be some art investments that ultimately disappoint the owners of artwork, simply because of changing trends or other considerations.
You should also consider the fact that buying and selling art can be an expensive business, with purchase and resale fees reaching as much as 25% in many cases, plus the insurance premiums and storage costs, that you will have to deduct to arrive at your potential net profit figure.
The other major consideration with art investing is that it is not going to produce an income.
All things considered, probably the most sound advice from art experts is to buy what you like rather than what it might be worth in years to come.
If you have a good eye for art, you will achieve the win/win scenario of enjoying something beautiful hanging on your wall, that appreciates in value and earns you a decent return. You should also be in it for the long term, as most art investment funds and the general concensus of opinion is that you must be prepared to hold onto your art for about ten years or more, if you want to improve your odds of achieving a reasonable return on your investment.