When most investors think of commodity investing, their go-to image is a gold coin or barrels of crude oil. But there are a number of other options beyond the “standard” commodities category, falling under “hard assets” instead. These are not traded on any sort of market nor do they have futures or options; the only way to establish exposure is to physically own the commodity. One of the most enticing hard asset investments comes in the form of fine artwork, for which collectors have created a hefty supply and demand system [see also Doomsday Special: 7 Hard Asset Investments You Can Hold in Your Hand].
What is Art?
No, we’re not trying to be abstract, but it can be easy for people to pigeonhole art into just one category. The average person thinking about art is probably taken straight to famous paintings such as the “Mona Lisa”. But what many forget is that art comes in numerous forms. Sculptures, photography, glass blowing, to name a few, can often be overlooked by beginners looking to get their feet wet with art investing.
For those just starting out, sculptures will often be above capital spending limits as these works can start at anywhere from $20,000 and skyrocket from there. Instead, newcomers may want to start off by looking at photography and paintings since these are considered more basic investments. Even glass works can come at low prices from some of the most famous artists out there [for more information on hard assets subscribe to our daily newsletter].
Art Investing: Advantages and Disadvantages
There are a number of pros and cons when it comes to placing your capital in a piece of artwork. Starting with the pros, one of the biggest draws to this asset is the fact that there is no underlying financial market to tinker with prices. There will never be a bad trade or a flash crash that will suddenly erase the value of your investment. Another big plus is the fact that you will physically own the work, meaning that you can ensure its proper care and proper storage as opposed to placing your money with a broker or financial advisor. Art also has the potential to appreciate with time. Though it is not a guarantee, as art ages it often becomes more valuable simply due to the fact that time has passed since it was created.
For all of its upsides, art investing comes with a fair amount of hardships as well. For starters, art is relatively illiquid; it’s not as if you can walk up to your computer and sell it within seconds. Turning over a piece of art takes diligent effort and most importantly, time. Another drawback comes from the actual storage of the work. While it’s nice to be the one who overlooks the investment, there is always the issue of safe storage (which usually involves insurance) and making sure that no damage is done to the work. Finally, time can be a major hassle for investors. Finding the right piece of art takes time and careful research, a luxury that is not available to everyone. Also, turning a piece around and selling it is another major time commitment and is one that many are simply unwilling to make [see also 25 Things Every Financial Advisor Should Know About Commodities].
First and foremost, be sure that the art is something that you genuinely enjoy. The price of art is relatively unpredictable and is heavily based on developing trends; there’s no guarantee that it will have appreciated in value (or even maintained its value) over time, so you may be stuck with the piece for the long haul. Another helpful tip is to always learn the artist’s back story as it has a fair amount of weight in the resale value of a piece. Those with interesting stories behind their life or how they got into art tend to have higher values placed on their pieces; knowing the story behind a piece can be a major selling point for collectors.
As was previously mentioned, the price of art can be very trend-based, so knowing when and when not to sell can make all the difference in an investment. You will also want to consider how you are going to store and protect the piece of art. Insurance is a must, but be sure to read all of the fine print, as damages caused from wildfires or seeping pipes may not be included in standard coverage plans. Another mistake that many investors make is lack of care when moving pieces; improperly packaged art can easily be damaged or destroyed. There are professionals who specialize in safely moving valuable pieces from one place to another, and shelling out the money for them is overwhelmingly preferable to having the entire work destroyed [see also Four Commodities To Buy Before Roubini’s “Perfect Storm”].
Where to Start
Below, we list several resources to help you get started with your art investments.
- Artnet: This website offers investors the chance to bid on and purchase various works of art from artists all over the world.
- Artprice: A leading resource for art market information from all over the world, this site also offers investors the opportunity to hop in on various auctions and get their feet wet in the industry.
- MeiMoses: This site focuses heavily on the financial side of things; it even has its own art index which it pits against major financial benchmarks to compare historical performance.
- Christie’s: Featuring live auctions all over the world, investors will be able to find art of all kinds on this massive site
- Sotheby’s: Similar to “Christie’s”, this site will be good for various investment types from all over the world.
Disclosure: No positions at time of writing.