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Most people consider the purchase of art to be an aesthetic and cultural addition to their interior spaces. While this is often the central motive for art acquisition, art can be a worthy investment for purposes of maintaining wealth in a portfolio. This goal is possible for a variety of investors if a strategy is coupled with considerable due diligence and professional advice.
The Art & Finance Report 2019, published by Deloitte Luxembourg in cooperation with ArtTactic, indicated that 52 percent of art collectors are investing in art to diversify their portfolios. It is important to know art collecting requires the same strategic risk management as other assets.
There are several strategies to containing wealth within your portfolio:
Diversifying your investment portfolio
To begin with, consider art as an alternative asset class to your current holdings. Return on investment in art is very different from more traditional types of investments. Art is not linked to stocks, bonds or other conventional markets, so it can hold its value. Further, art can act as a hedge against inflation as volatility in other markets and the economy in general are not reflected in the art market. Depending on the quality and value of the art acquired, it can offset losses in other asset classes.
Researching the art market
While there is no singular source for art research, there are several places where you can become very familiar with various artists and the historical performance of their work. Exploring online, as well as visiting art galleries and auction houses will assist in gaining information about what is available for purchase and other relevant information about the buying and selling of pieces. Online resources like ArtTactic provide a variety of options for researching art and artists.
Buying from reputable dealers
As buying art can be a complex activity with respect to valuation and verifying authenticity, investors often prefer a reputable gallery or auction house. Careful attention should be given to the documentation for the piece including certificates, sales invoices and other paperwork that will verify its history. Although the commissions and fees can be steep, you may find this worthwhile for the additional information and expertise that will be provided. Remember that no authenticity guarantees are generally provided by these sellers so, you are still responsible for what you purchase.
Considering digital art
Since the 1960’s, various forms of electronic technology have been used to create and present art. NFT’s (Non-fungible tokens) have become a popular and trusted source for buying and selling digital art, as they carry individual identification coding, making them traceable and authentic. If your art preference is for emerging artists, then NFT’s maybe for you.
Investing in fractional shares
Quality art investment can involve substantial amounts of money. There are fractional shares that may be purchased through an alternative asset class namely, fractional shares. Examples of firms that engage in this activity include Masterworks and Maecenas. Be sure to investigate their practices and operations to see if it is right for you.
Not ignoring tax implications
Acquiring art can have numerous tax implications that vary between countries and jurisdictions. As part of an art collection strategy, it is important to understand the ownership and transfer of title may have dues, licenses and other costs associated with it. Further, bequesting art in the future can also be subject to certain practical and legal restrictions. It is always best to engage the services of tax and legal experts to avoid this situation.
In 2023, overall global art sales experienced a 19 per cent decline, particularly for the contemporary and modern art categories. However, like any asset there is always optimism that follows for the upcoming fiscal periods.
As an investor you need to consider the risk management component of art investment, particularly in conjunction with wealth preservation. Professional guidance from legal, tax and art advisory firms with this expertise is essential.
By Shantel Susan
The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.