Back in the 1970s, during oil crises and rising inflation, people began turning to art as a valuable financial asset. Today, it remains a popular choice for those looking to invest outside traditional markets.
According to Britannica Money, British Rail Pension chose to invest in artwork, allocating approximately £40 million or around 3% of their assets at that time. This marked the first organised effort to consider art as an investment.
Art is regarded as an asset because it is a tangible item that holds monetary value and can be exchanged. However, unlike commodities with fixed prices, art has a unique position as an asset due to its subjective value, determined by what a buyer is willing to pay, as outlined in research by Mambarachi, Day, and Favato (2008).
While its classification as an investment has evolved gradually over centuries, art has continuously provided financial advantages to high-net-worth individuals, as noted in the daily news service Wealth Briefing.
This article will explore the factors that drive prices in the art world and uncover why investors believe art is a smart alternative investment choice.
What Drives Prices in the Art World?
Understanding the key factors influencing the art market is essential for anyone looking to acquire new artwork or manage an established collection, helping to assess art's potential value effectively.
This section will provide the primary drivers of the art market, helping collectors make informed decisions when growing their collections.
Rarity
Rarity refers to non-editioned pieces that exist as a singular creation by the artist. This factor drives the value of art, as the limited availability of a piece makes it more difficult to obtain, increasing its appeal to collectors.
Artist’s Reputation
The reputation of the artist is a factor that demands higher prices, as established artists often have a proven track record in their craft.
According to a marketing consultant De Pointe, this can be reflected in their schooling, exhibition history, and whether their work has been acquired by prestigious museums and galleries, all of which enhance their standing in the art world and increase the desirability of their pieces.
Historical Ownership
The history of sales or acquisitions significantly influences an artwork's value. The Art Row highlights that artworks with notable provenance—especially those previously owned by renowned collectors or showcased in esteemed museums—possess a sense of significance that can enhance their value.
5 Reasons Why People Invest in Art
Art is a unique investment that can offer financial rewards when approached strategically. This section will explore the main motivations behind art investment and the strategies collectors use to maximise the value of their artworks.
1. Financial Incentives for Art Investment
Several countries, including the United Kingdom (UK), offer favourable tax benefits for art investments, such as deductions, exemptions, and deferred capital gains taxes.
Quantus Gallery revealed that these incentives enhance art’s financial appeal as an investment, offering a strategic advantage for investors seeking to optimise returns while reducing tax liabilities.
Tax Saving Schemes for Art
According to Howard Kennedy, a law firm, the UK Government has introduced various tax-saving and deferral programs aimed at collectors of art and cultural property.
These initiatives allow the public to access cultural items that might otherwise remain private or sold internationally, providing collectors or their estates with tax relief or deferment in exchange.
For instance, The Cultural Gifts Scheme allows UK taxpayers to donate significant artworks and cultural items for public benefit while granting them a tax reduction based on a percentage of the gift’s value. In this way, donors can lower their taxes when contributing valuable items like artwork.
2. Portfolio Diversification
An asset is anything of financial value owned by individuals or businesses. In this context, artwork is also an asset, particularly a non-liquid asset, which means it cannot be easily converted into cash.
While this may discourage those looking for a get-rich-quick scheme, art presents unique advantages as a long-term investment. A key benefit is its role as a diversifying asset, helping to spread risk across an investment portfolio, as highlighted by the contemporary art gallery Ticerta Art.
Art Investment
For instance, contemporary art prices appreciated by approximately 17.5% during high inflation. This performance outpaced traditional assets like the S&P 500 and gold during the same timeframe, highlighting art investment as a vital inflation hedge.
In this regard, despite market unpredictability—during economic downturns or periods of volatility—art remains a stable asset that can hold its value over time.
3. Cultural Impacts of Investing in Art
According to a report by Sidford (2000), art plays a crucial role in how individuals express their experiences, shape their identities, and envision the future. It provides a way to explore humanity and understand the broader picture of society by reflecting on shared values, challenges, and aspirations through various art forms.
Pop Art’s Influence on British Culture
Tate highlights that Pop Art is an influential movement that transformed British culture, which emerged in Britain in the mid-1950s. This trend allowed British culture to express its identity distinctly, separate from traditional, often elitist art forms.
Pop Art questioned conventional ideas of artistic value and highlighted art’s accessibility to all, says Rtistiq. Artists drew inspiration from popular culture sources, such as movies and advertisements, making art more inclusive and reflective of everyday life.
4. Emotional Influence of Art
Based on Eclectic Gallery, the emotional impact of visual art is profound and multifaceted. Studies reveal that interactions with art can trigger emotions such as joy, awe, sadness, and contemplation.
Art’s ability to convey complex emotions enables it to transcend language barriers, fostering a deep emotional connection in colours, form and composition, context and other factors shaping art. Thus, art evokes a universal emotional response, regardless of background or culture.
Tracy Emin’s Piece on Grief and Loneliness
One famous painting that catalyses grief is Tracey Emin’s In the Dead Dark of Night I Wanted You. The image portrays a reclining woman, her face marked by harsh, furious strokes of black paint.
Emin creates a composition as intricate as the emotions and experiences she aims to convey by combining aggressive brushstrokes, ominous blood-red paint drips, and fluid figurative gestures.
In this manner, viewers can sense the raw intensity of the emotions, connecting with the piece on a deeper level.
5. Art as a Status Symbol
Art has been a longstanding symbol of wealth, power, and prestige. Historically, monarchs adorned their palaces with masterpieces, while aristocrats commissioned portraits and sculptures to showcase their social status, as referenced in My Art Broker.
This tradition continues today, as affluent individuals and corporations utilise art to elevate their brand image while reinforcing status.
J. Paul Getty’s Art Collection
As one of the wealthiest individuals of his era, J. Paul Getty rose to prominence through his achievements in the oil industry and his passion for art collecting.
His fortune allowed him to amass an impressive collection that included European paintings, sculptures, manuscripts, and decorative arts.
While collecting has been one of his greatest passions, Getty went further by opening a museum to showcase his treasure to the public.
The Getty Museum showcased his commitment to art and reinforced his legacy, linking his name with cultural patronage and elevating his status.
Is Art a Good Alternative Investment?
Art investment has gained popularity among collectors and investors, sparking debate on its capability as a reliable asset.
Although art is a non-liquid asset with uncertain appreciation over time, it remains a sought-after investment for its long-term returns across various aspects.
Art offers collectors financial incentives, portfolio diversification, cultural influence, emotional impact, and social status.
In essence, art serves as a means for financial gain and personal impact, making it an ideal alternative investment for those people spending millions on them.
Investing in Artwork: Frequently Asked Questions
1. Is investing in artwork a good idea?
According to Investopedia, investing in fine art offers potential rewards but it is also a risky endeavour. The future value of artwork is unpredictable, meaning there is no assurance that all pieces will increase in worth.
2. What is the best art to invest in?
Building an art investment portfolio with works from the best blue-chip artists, such as Pablo Picasso, Vincent van Gogh, or Andy Warhol, can offer a strong foundation.
The value of their artworks typically increases over time, making them a relatively secure investment choice, as referenced in Quantus Gallery.
3. How do I start investing in art?
My Art Broker suggests full ownership of art is the most conventional method of investing, where an individual or entity buys a piece of art and holds exclusive ownership.
This can be achieved by purchasing art through primary or secondary markets, such as auction houses or private transactions with individuals, dealers, brokers, or galleries.
Manage Art as an Asset with MyAssets
Whether one is interested in investing in artwork or has already built an extensive art collection, using tools like MyAssets is crucial for tracking the artwork’s growth in value.
MyAssets is a complete asset management platform that allows collectors and investors to digitally catalogue artworks by storing information like title, number of items, purchase price, and current valuation.
Worried about losing important documents for appraisal? MyAssets offers a solution that allows users to securely upload and store essential files, such as purchase receipts and previous appraisal reports.
Interested to know more? The platform can be explored in detail at app.myassets.com.
