Advantages & Disadvantages of Investing in Art
You think about investing in art but are still not sure whether this would be a good investment or not?
Great! Stick with me since I will show you the pros and cons of investing in art in the following chapters so that you can better decide whether you still want to invest in art or rather want to invest in gold or other things instead.
Advantages of Investing in Art
- Investing in art has a long history
- Proven concept behind investing in art
- Buying art can be an inflation hedge
- You can diversify your portfolio by investing in art
- Many good sources to inform yourself about art investments
- Huge price increases in the past
- Art becomes scarcer over time
- You can enjoy nice art at home
- You can impress your friends by investing in art
- There are many different kinds of art
- You can make a fortune if you are lucky
- You can make real bargains in the art market
- Art may not be as overpriced as the stock market or real estate
- You can learn a lot about art in general
- Collecting art can be interesting
Investing in art has a long history
One advantage of investing in art is that art has a pretty long history.
In fact, people have been investing in art for centuries and have made many really good deals over time.
Some people also just handed over their art items to the next generation and values really went through the roof over many decades.
Proven concept behind investing in art
Investing in art is also not a dodgy thing. Instead, it is a rather proven concept and is not hard to understand.
You just buy art with the goal to sell it for more money later on and if you study for a little bit and also not only rely on your gut but rather on fundamental values, chances are that you will be able to find some really good investments in this market.
Buying art can be an inflation hedge
Artwork can also be a great inflation hedge. Compared to paper money which loses lots of value during times of high inflation, art usually appreciates in value with inflation and will therefore increase in value from a nominal standpoint so that art can be a much better option during times of high inflation compared to just leaving your money in the bank and doing nothing with it.
You can diversify your portfolio by investing in art
Another upside to buying art is that you can also diversify your investment portfolio.
While you might already have bought gold, stocks and real estate, far fewer people are also invested in art and if you haven’t done so right now, it may be a good time to diversify your investment portfolio even further so that it will become less swingy during times of financial distress.
Many good sources to inform yourself about art investments
Compared to just a few decades ago, it is now much easier to inform yourself about artwork and how valuable it is right now and what can be expected in the future.
In fact, there are many good YouTube channels and blogs out there where you can get all the information you need to become a real expert in this field without having to spend lots of money on education in this regard.
Huge price increases in the past
The value of some pieces of artwork just went through the roof over the past decades and if you buy the right art items, you may be able to beat the stock market or other conventional forms of investments.
Sure, you should never put all your eggs in one basket.
However, it may still be reasonable to invest a few percent of your net worth in art or other alternative assets.
Art becomes scarcer over time
Since art becomes scarcer over time since an increasing number of pieces get damaged, destroyed or lost over time, good artwork also often appreciates in value significantly over the years and if you are patient enough and also willing to deal with huge swings in value, investing in art can be great for you as a long-term investment.
You can enjoy nice art at home
Art cannot only be a great investment but it can also just improve the looks of your home.
For instance, you can just collect nice paintings and put some of them on your walls so that you can enjoy the atmosphere while you can still make good investments and speculate on future price increases.
You can impress your friends by investing in art
Many of your friends will also be pretty impressed when you tell them about your art investments.
In fact, investing in art has become increasingly popular over the past years and if you become a real expert in this field, you will have to tell many interesting stories and may have a pretty high standing among your circle of friends.
There are many different kinds of art
Another benefit of investing in art is that there is not only one kind of art.
While some people just collect paintings, others collect jewelry, porcelain and many other things and you can just specialize in the type of art you are most interested in and become a real expert in your field.
You can make a fortune if you are lucky
While most people who invest in art don’t get rich, some lucky people just make a real fortune.
In fact, you can see investing in art as sort of a lottery ticket. In case you hit the jackpot, you can make really good money out of it while most people will never get into this position.
You can make real bargains in the art market
Since the art market is not perfect and there are lots of information asymmetries between buyers and sellers, you will also be able to make many bargains in the art market and buy undervalued art, at least if you know what you are doing and are also willing to really immerse yourself in this field.
Art may not be as overpriced as the stock market or real estate
Since investing in art is not as popular as investing in stocks or other major asset classes, art may also not be as overpriced as more popular asset classes yet and you may therefore be able to get higher returns on your investment.
You can learn a lot about art in general
Since you will have to inform yourself quite a lot to stay ahead of the game when investing in art, you will also learn a lot about art in general which can make you much wiser over time and you can also really impress your social circle with all this knowledge.
Collecting art can be interesting
Collecting art can also be pretty interesting and can not only be a smart investment but can also become a nice hobby of yours so that you can also have fun when you think about how to invest your money.
Now that you know the reasons for investing in art, we also have to talk about the drawbacks of buying art in the following so that you can better decide whether you still want to invest in art or rather want to invest your money in different asset classes instead.
Disadvantages of Investing in Art
- You have to store art in a proper manner
- You may damage your art items over time
- Some artwork will never become really valuable
- Investing in art may be a gamble
- Art is not as liquid as stocks or other assets you can sell every minute
- Artwork doesn’t pay dividends
- You have to really immerse yourself in the topic
- There are many fake art items
- Even experts often make the wrong decisions
- Some dodgy sellers may convince you to buy poor quality art
- Hard to put a price tag on artwork
- Your loved ones may not understand your decision of investing in art
- Hard to really scale your art portfolio
- Prices for artwork significantly fluctuate over time
- Most beginners lose money by investing in art
You have to store art in a proper manner
One problem with investing in art is that you will have to store your art items in a proper manner and if you don’t know how to do so or just don’t care in this regard, your art items will lose quality over time and may lose lots of value in the long run.
You may damage your art items over time
If you want to invest in porcelain or other kinds of art that will break pretty easily, chances are that your art items will get damaged over time and in case this happens, this can really ruin the value of your art portfolio while you will not have this problem by investing in stocks or other asset classes at all.
Some artwork will never become really valuable
While there are some great opportunities to make really good investments in the art market, you should also know that many art items will never become really valuable and that you may just make many bad investments and may even lose money in the long run.
Investing in art may be a gamble
Investing in art can also be regarded as kind of a gamble. If you are really lucky, you may hit the jackpot.
However, for the vast majority of people, this will never happen and many people may lose lots of money in the process of chasing this jackpot.
Art is not as liquid as stocks or other assets you can sell every minute
Another downside to investing in art is that art is simply not as liquid as stocks or many other asset classes and while you can sell most stocks within minutes or even seconds, it may take you quite long to turn artwork into cash and this can be quite annoying, especially during times when you urgently need the money within a rather short period of time.
Artwork doesn’t pay dividends
You should also keep in mind that while stocks often pay you dividends and you will get rent from your rental properties, artwork doesn’t pay any sort of dividend and will therefore be a store of value rather than a cash flow optimized asset.
You have to really immerse yourself in the topic
Since the art market is not even close to perfect and there are still many good and bad deals, you really have to immerse yourself in the topic and have to learn quite a lot about different art classes and how to valuate them properly and this will cost you lots of time before you become a real expert in this field.
There are many fake art items
Another disadvantage of investing in art is that there are just many fake art items available in the market right now and if you are not careful, you may spend lots of money on fake artwork and may never be able to recoup your losses.
Even experts often make the wrong decisions
Since the art market is pretty complex and you have to become excellent in what you are doing to avoid buying fake artwork or overvalued art, even experts often make incorrect decisions in this regard and you may make many mistakes as a beginner.
Some dodgy sellers may convince you to buy poor quality art
There are also not only nice people operating in the art market. In fact, there are many dodgy sellers who will use your lack of expertise to their advantage and if you are not careful, you may lose lots of money buying minor artwork that has no value at all.
Hard to put a price tag on artwork
It is also pretty hard to put a valid price tag on artwork since art pieces are often unique and there are not many similar items that might have been sold yet.
Consequently, you will operate in a market with high levels of insecurity and wrong decisions on your side can really cost you lots of money.
Your loved ones may not understand your decision of investing in art
Since investing in art is still not as popular as investing in stocks or other asset classes, your family and friends may also not understand your decision of investing in art and you may therefore have to justify quite a lot in this regard.
Hard to really scale your art portfolio
Since you need lots of space to store your art investments in a proper and safe manner, it may also be hard to scale your art portfolio to a point where it can be worth lots of money.
Prices for artwork significantly fluctuate over time
You should also know that art prices are not stable at all and greatly fluctuate over time.
Hence, you should never buy art as a short-term investment since it may greatly depreciate over time in the short run but rather look at it from a long-term perspective.
Most beginners lose money by investing in art
Since most people investing in art don’t inform themselves carefully, many of them also lose money by investing in art in the long run and you should therefore spend lots of time in this field before purchasing your first art items so that you can be one of very few people who can make really good money from buying art in the long run.
Top 10 Buying Art Pros & Cons – Summary List
|Buying Art Pros||Buying Art Cons|
|Investing in art is a proven concept||Investing in art involves high risk|
|You can hit the jackpot if you are lucky||Many art items will never become valuable|
|Art investments have become increasingly popular||Many fake art times out there|
|You can diversify your portfolio by investing in art||Most beginners lose money in the art market|
|Art can be an inflation hedge||You have to spend lots of money to become an expert|
|You can find many undervalued art items||Hard to store art in a proper manner|
|Investing in art can be a nice hobby||Artwork may get damaged or destroyed in the long run|
|You can really enjoy your art pieces||Hard to put a price tag on artwork|
|You can impress your friends by investing in art||Demand for art greatly fluctuates over time|
|Many art items greatly appreciate in value||Art is not a great short-term investment|
Should You Invest In Art?
While investing in art can make quite a lot of sense since it can help you diversify your asset portfolio and can also be a great inflation hedge, you should also know that most art items will never be worth a lot and most beginners also lose lots of money investing in art in the long run.
In the end, you should evaluate the advantages and disadvantages of investing in art carefully and make your own judgement regarding whether this investment makes sense for you or not.
About the author
My name is Andreas and my mission is to educate people of all ages about our environmental problems and how everyone can make a contribution to mitigate these issues.
As I went to university and got my Master’s degree in Economics, I did plenty of research in the field of Development Economics.
After finishing university, I traveled around the world. From this time on, I wanted to make a contribution to ensure a livable future for the next generations in every part of our beautiful planet.
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