26 Jul 2011

Investing in art

Investing in art needs some research

With reports in the media focusing primarily on the merits of investing in art and making it appear as an attractive option for all investors, it raises a lot of questions for investors who are attracted to art as a financial investment instrument. Art can undoubtedly give huge returns in the long term, but there are many layers to it, which may not be immediately evident to nouveau buyers, but are nevertheless present and hence require a healthy understanding of the workings of the art market.
It is important to consider various aspects related to investing in art for instance, the risks associated with it, its liquidity and also how it fares against other investment assets. It is inadvisable to consider art from a purely financial investment angle; after all, it is one of the few (such as antiques and collectibles) options which has a ‘decorative’ side to it. It would therefore be rather inappropriate and superfluous to override the aesthetics and visual content of art.
One should consider investing in art only after allocating funds to conventional assets such as stocks, real estate and gold. Also, consider art as a long-term proposition and keep in mind that it may take some time to sell it off when necessary.
Most people who have made a lot of money through art are those who bought works at low prices by artists who would have then gone on to establish themselves in a big way later on. However, it is important to realize that not every artwork will appreciate considerably in the future - prices are likely to increase with time corresponding with the artist’s career but not all will show a significant change or a dramatic graph. This implies that the element of risk is probably high when buying artworks priced in the lower bracket range. Art which is priced higher and is done by established artists is a safer option in terms of investment, but requires a larger outlay from your part. It is also essential that as a buyer or investor you have some knowledge of art and understand the dynamics of the market to an extent.
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