Fine Art Investment

As an alternative investment, buying a painting that you have a personal affinity with can give you a lot of pleasure and also deliver a profit over the longer term, although fine art investment definitely needs to handled with a fair degree of caution.

You won’t have to take too long searching the internet to come across stories of paintings being bought for small sums of money and being sold for many times the original investment at auction.

These stories make good news headlines and if you are adept at spotting a rising star or speculate on a painting that turns out to be by someone who commands huge auction prices, then fine art investments can quickly become very lucrative and rewarding in more than just monetary terms.

Fine art auctions tend to attract a lot of interest and Christies, one of the predominant global auction houses reported recently that nearly 20% of their bidders were new clients and the actual total number of registered bidders has more than doubled over the last decade.

Reasons for investing

This surge in interest is understandable when you consider that the art market has the potential to offer you interesting items to invest in that can provide you with a great deal of pleasure and also give you an asset that has the ability to increase in value whilst you are enjoying it.

Your reasons for investing in fine art can be purely financial and just a matter of diversification into an alternative asset in search of a profit, or it could be an investment strategy that is also driven by a love of art.

Whatever your motivation, fine art investment divides opinion, and some financial advisers will offer strong wealth warnings whilst other strategists will counter that it is a form of alternative investment that can meet the diversification needs of clients with large portfolios.

Low volatility

Many investors would consider fine art investing to be subject to considerable price volatility as trends and preferences, as well as economic conditions, can quickly send prices up or down in big numbers.

It is worth noting that there is evidence to support the observation that art prices actually operate within their own market bubble a lot of the time and have fluctuated independently from standard investment vehicles such as share prices, bonds and property funds over the last 25 years, so it is an investment market that seems to operate to its own rules and price triggers rather than simply following general economic conditions.

There is no doubt that art prices can be affected by a poor economic outlook, but seemingly not as much as you might think.

A recent study by JP Morgan also demonstrated that the volatility of art prices over the last 25 years was lower than US and international equities and also less volatile than commodity prices too.

Positive returns

There are market indicators that suggest reasons for optimism that art investment can produce positive returns, when you compare the performance of the Mei Moses World All Art Index to the S&P 500.

The returns on art investments closely matched the performance of the S&P 500 over the last 50 years and has actually outperformed that index over the last decade.

New buyers

China can take responsibility for the recent growth and revival in the global art market, following a considerable correction in 2009.

2011 was the year when China managed to overtake the US for the first time in history, as the largest art and antique market, so a continuing influx of new buyers could potentially help drive prices higher or maintain steady growth.

Unpredictable

Investing in art always needs careful consideration and should not form a large part of your investment portfolio.

It is an unpredictable market that is subject to fairly regular changes in trends and fashion. It can also be difficult to get your money money back quickly if you need to and you also need to factor in the fact that purchase and resale fees can account for as much as 25% of your investment costs, plus any storage and appraisal costs you incur.

Good advice

Many art insiders suggest you should always buy what you like rather than concentrating on investment potential and advise you to hold on to your art for at least 5 to 10 years in order to have the best chance of seeing an increase in value.

You might want to consider attending events like an affordable art fair, where you can acquire some items at reasonable price and get the hang of what works for you. There is money to be made buying art at modest prices, especially if the artist becomes more high-profile and prices rise to reflect their growing popularity.

The general advice is that those investors who invest in art simply to make money are more likely to get it wrong, compared to those that invest in what takes their eye.