So you think you want to invest in art? Diversifying portfolios by purchasing tangible luxury assets has become increasingly fashionable over the last decade, and fine art is a popular way to do that — financiers, celebrities, and royals are known the clog the salesrooms of the biggest auction houses during the elaborate evening sales in New York and London. But under the glittering lights, it’s easy to forget that buying a Picasso as an investment is a great way to lose $20 million if you don’t do it carefully.
Experts have plenty to say both for and against art investing, and we've tried to sum up both sides of the debate on four key issues: Risk, Regulation, Cost, and Taxes.
Point 1: It’s Too Risky
There is no guarantee that your artwork is going to increase in value — much art is doomed to go out of fashion. An individual work or series of works can even decline in value while other works by that artist appreciate. Art can be appraised, but it’s not liquid enough to actually mark it to market. An appraised value is no guarantee of getting that price on the secondary market. In fact, just this week, writer, dealer, and collector Adam Lindemann wrote that he has noticed work is selling for much less on the secondary market than in the primary market — the opposite of the way the market worked a decade ago: “very often, when you buy a brand new piece in a gallery, my view is that it’s worth half the moment you walk out the door,” he wrote. Not a great basis for investing, in other words.
But then again, some works will increase dramatically in value. All investments carry some sort of risk, and generally the higher it is the higher the reward. Art is high risk and not always high reward (there are high transactions costs and high carrying costs, even if it does appreciate). Thus, art is a luxury asset that shouldn’t be considered in isolation: A single Damien Hirst painting shouldn’t be your retirement plan. Still, it’s not a bad diversification tool, particularly if you also happen to derive emotional value from hanging it on the wall. If you want to buy art with a small portion of your wealth as a way to enliven your living space while also purchasing a tangible asset, that’s great — just know when you walk out of the gallery that you risk being stuck with it forever.
To read more from Blouin ArtInfo, click here.