The global art market has continued to thrive, making it a major area of interest for investors. The major question on everyone’s lips is can art collection be considered a good investment? Our answer is – it depends on your goals and reasons for investing.
There’s no doubt that art can increase in value and provide good returns. Worldwide sales of art and antiques reached an estimated $50.1 billion in 2020, according to an Art Basel Annual Report. Despite the closure of auction houses and galleries due to COVID-19, collectors found a way to get their hands on precious pieces.
Some prominent individuals who have valuable art collections include billionaires like Francois Pinault, whose collection is said to be worth an estimated $1.4 billion. The most expensive collection in the world is worth $3 billion and owned by the Nahmad brothers, Ezra and David. They are said to have up to 5,000 works of art that they buy and sell for maximum profit.
However, as with any other investment, thorough research must be conducted to determine if investing in art is the best way to put your money to work. There are a lot of risks involved in collecting art if you intend to make money from it. However, it is advisable to spend a decent amount of time gathering knowledge and information about the industry.
A good way to start is to speak to experts and understand what makes for a high-value piece of art. Visit galleries, attend art fairs and auctions to get a sense of how the buying and selling of art pieces. Pieces created by deceased artists tend to sell for higher prices because of their rarity and the diminished possibility of replication.
However, art by living artists also does well in the market. If you can catch an early creation by an artist who later becomes successful in their career, the value of their work can rise by a significant margin. A great place to start would be to explore and discover any contemporary artist who sparks your interest. Study their background, style, exhibits and any work they have been commissioned to do. Speak to a curator or art specialist to get their viewpoint on the artist and the potential of their pieces.
Art collection is a long-term investment and it is only recommended for patient investors who are willing to wait to get returns on their investments. It’s not suitable for short-term investors. Most people who invest in art use it as a way of passing wealth to the next generation and as a means of diversifying their investment portfolio.
A major principle to keep in mind when considering art collection as an investment option is to understand what you are investing in. This is advice that was given by the investment guru, Warren Buffett and mirrored in the classic personal finance book, The Richest Man in Babylon by George S. Clason. According to the book, the fourth rule of gold is “Gold slippeth away from the man who invests it in businesses or purposes with which he is not familiar or which are not approved by those skilled in its keep”.
In summary, there are three golden rules of art collection as an investment option, which are: Ensure you conduct your research; Think long-term; consider alternative investment options.