Art isn’t typically what comes to mind when most people talk about investing. We’re starting to see new platforms cropping up that let you invest in art, as well as other “alternative investments”, including whisky, watches and Pokemon cards, but the idea isn’t new. Art dealers have been buying and selling art for centuries.
New investment platforms are making these types of investments accessible to the everyday investor — you no longer have to be an expert in fine art with millions of pounds to invest.
It can be, but it depends whether the value is likely to rise. In theory, anything can be an investment if you’re buying it with the hope that you’ll make money out of it. You could spend some money getting your kitchen remodelled with the hope that the house value goes up by more than you spent. In this case, you’ve invested in your house. You could go to university with the plan of getting a better paid job than you would have got without, this is investing in yourself, or investing in your education. Some people buy old games consoles, toys or trading cards because they believe they’ll be worth more in the future, this is known as investing in collectables.
It’s important to remember that you’ve not made money from an investment until you’ve sold it, so you need to consider how you’ll go about selling it, if your strategy is to buy art and let it appreciate in value.
There are a couple of popular methods to invest in art: through funds and buying and selling artwork yourself.
This method is the most obvious way of investing in art — it works pretty much as you’d imagine, you buy your artwork, pop it on the wall in your home and appreciate it while it appreciates. Once you’re ready to part with it, you sell it.
It doesn’t quite work this well – you’d have to know how to choose artwork that you think will appreciate in value so you’d either need to be an art expert or have one to hand that can help you out. You may also need to organise storage so it’s not exposed to the elements, so you may not be able to appreciate it at all. Many art collectors take out insurance on their collections to cover for losses from damage or theft. You’d also want to ensure you know how you’ll sell it.
Art investment funds are privately managed collections of art. They are typically managed by art experts who buy and store artwork, selling it on for a profit when it has appreciated in value. Some of the profits are then divvied up among investors. Recently, there’s been an influx of art funds that securitise art to allow investors to buy fractional shares of it.
This is where a fund manager collects artwork and creates a holding company for each one, which is registered with financial authorities.
Shares of the company are then issued to investors of the artwork.
When it comes to selling the artwork, you often have the option to sell on the secondary market each year once the art is re-valued. The fund manager will sell the art at one point, at which time you’ll make a profit (or loss) on your investments.
While it’s not particularly suitable for beginners, art can be a unique way to diversify an existing investment portfolio for investors that understand risk and have a fair amount to invest over a long period.
Art isn’t as liquid (easy to sell) as shares, you’d need to organise the sale yourself or wait for an annual valuation, while stocks and shares can be sold with a few clicks on a mobile app.
That being said, it’s historically performed pretty well. According to The Live Art Index, the art market has performed nearly 3 times better than the S&P 500 since 1986. That doesn’t mean it will perform as well in the future, though.
You can, theoretically, but you could be taxed pretty heavily on your profits, so it’s worth talking to a financial adviser if you plan to do this.
Art is considered to be a fairly risky investment, as art isn’t as easy to sell as other types of investment, such as shares or bonds, because it’s a very subjective industry. Alongside this, artwork needs to be stored for long periods, so you run the risk of it being damaged or stolen.
Art can be an exciting addition to your investment portfolio, but if you’re not an expert on the subject, it might be best that you invest through a platform that leaves the sourcing, storing and selling to the experts. Make sure you consider the risks involved when you invest in art and speak to a financial adviser if you plan to place it in a pension or leave it in your will.
All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.
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