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What To Know Before You Invest in Art
Returns in the last few years were high, but caveats are still necessary for this market.
Volatility in the stock market is prompting many investors to hedge their portfolios with tangible assets such as art. But before you drop a bundle at a gallery or raise your bidding paddle at an auction, make sure you understand that art comes with its own risks and expenses.
According to the Mei Moses Fine Art Index, which measures the sales of fine art paintings in London and New York, the fine art market has outperformed the equity market for two years in a row.
But within any asset class fluctuation is the norm, and art, as an investment, should not be considered stable or liquid. Even if you're an expert, there's no accounting for the fickle taste of buyers. One year's must-have Andy Warhol is another year's hot Monet.
Art is considered a collectible, and generally will be taxed at the higher capital-gains rate of 28 percent, versus the current 15 percent for most equities held long-term.
Special costs that come with owning a work of art can include insurance, security, special transportation and storage, auction and appraisal fees and maintenance - all of which will take a chunk out of returns.
There are other, less-costly ways to hedge an equity portfolio -- by adding commodity funds or certain fixed-income assets, for example -- but it's hard to beat the thrill of owning a one-of-a-kind investment. That's why most experts agree: you should buy for the love of art as much as for the potential return on investment.
