When buying art, most people think about what will look great with their curtains and couch. However, it shouldn’t just be about that. You need to also consider how valuable it will be in the future.
Valuable art survives economic downturns because its value never goes below zero. This is unless it’s damaged . In fact, art prices bounce-back much quicker after crashes than most equities.
Build up positive long-term returns with art
The best argument for investing in fine art comes from its tested low-to-zero correlation to the movements of alternative assets. This is especially true for shares, bonds and real estate. In addition, art outperforms commodities during the most volatile market downturns. This is because art itself is finite. There is a limited quantity available and demand consistently outstrips supply.
However, these days, people are now starting to view art as a hedge against the volatility of the stock market. And, you too should diversify some of your portfolio into this sector, buying something in demand but not in huge supply. Try to find out how much a particular piece has increased in price. And, if you can’t find this information, look at other forms of art by the same artist or an artist who uses a similar technique so you can estimate the value.
There are two other important factors you should consider before you invest in art.
Holding art can be a costly venture…
When you start collecting art as an investment, it’s important to know the costs involved. These are ‘invisible’ opportunity costs including possible repairs, cost of insurance, maintenance and safe storage.
Art is not a tax-free investment
When you buy art, you’re liable for transaction costs such as the buyer’s premium. And, when you sell, you have to pay Capital Gains Tax on the item as well as the seller’s commission. The easiest way to calculate costs is to add 20% to the investment when you buy it and deduct 20% from the gross proceeds after you sell. That is why you have to wait for the piece to appreciate.
Don’t be discouraged. Just remember, art is a long-term investment and you need to be prepared to hold onto a piece for a couple of years to make real money.
The Art Curator Gallery, deals in South African Investment Art, and specializes in the selling & purchasing of South African Old Master Paintings. Click here to contact the Gallery if you are looking to purchase, or sell any specific Art.