Buying Art for Investments and Insurance
People often mistakenly invest in things thinking the value will appreciate–these items come in the forms of expensive bags, classic cars, and homes. In reality, most things lose value over time, so it’s really special when you can find something that is both a solid investment and something you can enjoy while you have it. Certain pieces of art fit these criteria.
Evaluating Risk
It should first be said that with every investment comes risk, and art can be particularly risky if you don’t know what you’re doing. You should always contact a financial advisor before putting a large lump sum into one area. This article will give you a general idea of how to locate the perfect pieces and how to take the steps to keep them safe.
On average, it takes about 10 years to see a large return on investment with art. You should only buy pieces you’ll be okay with looking at for a long period of time. Luckily, the art world has no connection to the stock market. Even when the economy is doing bad your asset retains its value. However, its value is intrinsically connected to an artist’s reputation, so if they mess up your portfolio takes a hit. Funnily, you can purchase partial shares of artwork using online marketplaces such as Masterworks.
Research
To get started you need to do a lot of research. Browse auction house sites to get a general idea of what things are selling for. These prices can often be really inflated, so make sure you have a basic knowledge of art styles and how long pieces take to complete. You can begin with our guide here. Look at the qualities of the most expensive pieces and note them. Next, attend graduate shows at universities of art to purchase similar pieces. These artists will not yet be well known, so you can get great pieces at an accessible price. As they grow and their name gets out there, the work will increase in value.
Insurance
Art should be a small part of your portfolio. Because it is so risky, it would be irresponsible to put all of your chips in one place. Especially because it is a physical product that can get stolen or damaged–this is where insurance comes in. You’ll want to get your art insured for its replacement value rather than its initial cost, so this requires getting it appraised every 1-2 years. The chance of recovery after art theft is less than 10% so this step is essential. Always keep the original receipts that came with your work and make sure you have lots of photos. You’ll most likely want to purchase property insurance which covers theft and damage–this can usually be added onto your homeowner’s insurance.
Lastly, make sure you only invest what you can afford to lose. Art should not be relied on for monthly income as it takes a while to be converted into cash. It can be compared to real estate. If you’re not into art, there are plenty of other things to invest in where the reward outweighs the risk. Investing in art should only be seen as a way to get a little bit of cash for something you were already going to purchase. Be willing to research. If you’re just getting started, original prints are a great way to own things that will appreciate without requiring millions upfront. Enjoy the search!