The Low-down on Investing In Art Part 2
Welcome back to the final part of the two-part series on investing in art. The last article covered the different ways to invest in art and considerations when buying art.
Collecting art is a passion, and it is fun. We acquire artworks because they enhance our lives. Are we improving our artworks in turn? We've all heard astounding stories about masterpieces eventually discovered in an attic. Of course, art requires physical care, but there's more.
Maintaining and growing the value of your art
If you're investing in art, then you want to ensure that you at least preserve the value of your investment and ideally want to maximise the return on your investment.
One of the critical actions to preserve value is collection management. Collection management is the practice of documenting and recording details related to the art pieces in your collection. Elements to note include the artist, the artwork title, when it was created and from whom it was acquired. It can help a lot to also save any documentation related to the artwork, such as the purchase invoice and certificate of authenticity.
Tracking the history of ownership of the artwork, or provenance, is also vital.
Several collection management platforms exist to enable a collector to perform collection management efficiently, and Capital Art is one of them.
Non-Fungible Tokens (or NFTs) perform collection management and provenance tracking by definition, which is why they have become popular.
The value of your art investment can grow as the artists' popularity increases and their works are exhibited in galleries, art fairs and museums.
That said, the value of your investment can also fall; this is why some consider art a speculative investment.
As with any investment, knowing how to exit your investment is essential to realise a return, especially when the investment doesn't pay any regular income.
Many collectors only sell in the event of one of the three Ds – divorce, [paying off] debt or death. Instead, an investor should regularly consider the value of their artworks and exit their investment when it makes sense. Exits occur when the investment is not performing or when enough of a return has been achieved.
Auctions play a significant role in enabling art investors to realise the value of their assets. When the auction house has a deep collector database, it is possible to try and maximise the demand for an artwork, which should assist in maximising the realised value for an artwork.
Art dealers also play a role in the secondary market. Art dealers are often involved in the case of very sought-after works, especially those of famous artists who are no longer alive. Some collectors form communities based on an interest in a particular artist and can then engage in peer-to-peer transactions. One of the challenges of direct sales (to the rest of the ecosystem) is that private-sale prices remain confidential. This means that those transactions do not assist other participants in the ecosystem with understanding where the clearing price is of the market for a particular artist or that specific artwork.
As with all investments, don’t forget to research how your investment will be taxed in the jurisdiction where you are a tax resident. Art is quite unique because it does not generate direct income and, in many jurisdictions, capital gains on art are not taxed.
Investing in art has many benefits, and it is best to invest responsibly. If you're just starting out, perhaps start by collecting art to preserve value before shifting to investing in art.
You might want to start off by checking out the Capital Art Beginner's Ultimate Guide to collecting art for value.