Nowadays, a lot of long-term investors are looking to diversify their investment portfolios by investing in unique, different and even exotic assets. Some may prefer to invest in cattle, some in wines, while others may prefer to invest in rare coins or authentic, fine jewels. There is one investment type that is gaining popularity recently and that is artwork. Aside from appreciation in value, you can even show support to artists or even become a stockholder of more classical paintings. However, as with any investment, there are pros and cons of investing in art.
Pros of Investing in Artwork
There are myths about investing in art that have kept the average person from entering this venture. There are concerns such as, “What if it’s a rip-off?” or “Investing on art is only for the rich, I don’t have funds for that.” These are all valid concerns, but there are clearly defined pros and cons of investing in art.
Some advantages are:
- There are no market fluctuations. Financial stock markets can be volatile and seasoned stock market investors are aware of how much of a roller coaster ride it is. Stock market corrections, fluctuations, and volatility are virtually non-existent in the art world. This one of the biggest advantages of this type of investment. You can sleep soundly at night, without worrying about what plagues other investors.
- Appreciation over time. Unlike company stocks, that may reflect volatile prices, art investment usually appreciates steadily with some time. If you have chosen a good art piece wisely, it is possible that some time down the road, your art is more likely to be worth more than what you paid for it.
- The value of enjoyment. A lot of art investors are collectors first and as investors, second. Fine art is an asset that can be appreciated and displayed. Take note, that if you are not interested at all in art, this could be tedious or difficult for you to invest in.
Cons of Investing in Art
Every investment you make comes with its downsides though. You’ll have risks associated with investing in art as well. The disadvantages are:
- A barrier to entry in the art world. The main barrier to entry here is a lack of knowledge. To invest in the stock market, you need to research the company stock you want to buy, check the statistics and look at the history or earning report. If it makes sense, you are only a few mouse clicks from being a stockholder. When investing in art, you have to familiarize yourself with a lot of information before you make your first purchase, which may be a little different from other forms of investing.
- It’s not a liquid asset. Art investment is not a liquid asset in comparison to other forms of investing. The buying or selling of some investment products is instant, with just a few clicks online or a simple call to your broker. However, selling art takes time, effort and planning if you want to get the best price for your piece. So if you think you will need your money soon, then this type of investment isn’t for you.
- There’s no guarantee of appreciation. Even if you think you’ve done everything right, there isn’t a guarantee that every piece you decide to invest in will be worth several times over what you paid for in a few years. The art world is a fickle environment. It is possible that new artists can quickly fall just like the next trend. That’s why it’s important that you truly love the artwork piece you’ve invested in since there might be a chance you may need to hold on to it a bit longer than you anticipated.
Other Things to Consider
It is also important to keep in mind art investments take a sizable amount of initial investment money. Most art investors are putting at least five figures into their investments and see around 10.6 percent returns if any return is realized at all. It is possible your piece of art won’t appreciate in value at all. Sometimes, artwork only maintains value, which makes it an okay investment for tax purposes but won’t necessarily make you a ton of money over time.
Given the pros and cons of investing in art above, you have the information you need to make an educated decision. Thankfully, there are also plenty of pieces of information and help online.
Platforms such as Masterworks can help you invest in art with less risk and help you identify trends before making a definite decision on your investment. You can even begin diversifying your portfolio without much money upfront. Check this out to see how.