Investing in art isn’t as simple as buying an expensive painting, sticking it up on your wall and hoping for the best. Tony Barrett, wealth manager at First National Bank (FNB), explained: “Investing in art can yield returns for investors but needs careful consideration. Art does not generate income and should not be viewed as an asset class an investor can depend on for retirement funding. It is generally associated with ultra-high net worth individuals who invest in it mostly from a lifestyle perspective.”
Barret noted that he would only advise people to invest in art “where it is appropriate to their current financial situation and needs, and it would only be for surplus capital that is in excess to the capital needed to fund retirement and liquidity commitments.”
What about the art?
“Investing in art is part passion and part investment. People should ensure that that they invest with eyes wide open and get professionals to value the potential investment or consider themselves knowledgeable,” highlighted Barret.
If you are purchasing art not just as an investment, but to put it on display as well, Barret stressed that security is important.
“Some people buy the art as an investment, but also want to view it and have it on display. In these instances adequate security needs to be put in place to protect the asset, just like any other valuable asset. Other investors have their art stored in a secure bank vault and are not too concerned about the enjoyment factor that it may bring,” revealed Barret.
It is also advisable to take out insurance on the art that you purchase to protect it against loss or damage. However, Barret noted that the type of insurance needed will depend on the valuation of the art. “The principle is that you would treat this art no different to any other valuable asset that you may own.”
As with other assets, there is also some risk involved in investing in art. “The value of the asset might fluctuate or stagnate depending on market conditions. The basic investment principles of reducing exposure to market vagaries also apply in art investing. If your art collection makes up 90% of your assets, it is advisable to sell a portion of it. If one has five percent of their overall assets exposed to art, the risk is minimal and holding on to the art piece may not be too risky,” explained Barret.
Evaluating the art
Before purchasing a piece of art, Barret emphasised that it is important to research the piece that you are wanting to acquire, including getting third party independent research.
“Specialists firms such as Southeby’s do make themselves available to come and review and value a potential art acquisition. It may turn out to be money well spent,” said Barret.
Once you have acquired the art, it is not necessary to get it evaluated on a regular basis, as it is purchased as a long term investment. You would therefore only need to get it valued when you are wanting to dispose of it.
“Similarly to the four main asset classes (property, cash, bonds and equities) it is important to get professional advice when buying or selling art. It is also worth considering who will appreciate the value of the piece, both in currency and sentimental form, when bequeathing your prized possession,” added Barret.
Furthermore, Barret noted: “The basic principle is that art bought as an investment should be treated like your other valuable investments, apply common sense. You would not buy a property investment and not insure it, or ensure that it is not regularly maintained and kept in good condition.”