Diversify Your Portfolio With Art

by Junior Boomer on February 7, 2013

Two people at arts exhibitionA truly diversified portfolio goes beyond conventional investments.

Stocks, bonds and commodities are great, but they are by no means the only way to grow your money.

There are other marketplaces that require similar investment knowledge and sometimes yield higher returns.

The private art market has recently seen record-high sale prices and is garnering more attention from the investor looking for something different.

You don’t have to be a day trader to know how to make smart investments and you dont have to be a graduate of art history to make money with art (though it helps). By understanding the dynamics of the art market, you can diversify and grow your investment portfolio.

Market Basics Still Apply

Warren Buffet gave the world these two rules of investing: 1) Never lose money and 2) Never forget rule number one. In other words, youre not gambling, nor are you making frivolous investments youre making a calculated risk based on market indicators and savvy. Do your research.

The Art of Art Investing

Trends, historic relevance and timing all go into making a great art investment. Its more nuanced than buying famous artists or choosing works that are aesthetically pleasing. To be successful you must know which pieces are undervalued. It takes time and effort to develop this level of market anticipation, but it is possible and can be highly profitable.

Invest to Your Ability

The last thing you should do is grab a paddle and run to an auction. While you should have an interest and desire to follow the art market, you should still hire professionals when they’re needed. There are art consultants and art investment firms than can directly guide your purchases or allow you to pool your money and profits with other investors. Its always beneficial to talk to someone who knows art history and, more importantly, the history of the art market.

Know Your Overhead

Unlike conventional investments, art has relatively high upkeep costs and higher taxes. If you’re planning to buy and hold a painting for a number of years you must take into account the price of insurance, recurring restoration costs and the auction house or galleries cut.

Not for Flippers

The typical initial investment in art starts at about $10,000 and can range into the hundreds of thousands, according to Tom Johansmeyer of Luxist.com. Before laying out that kind of cash, its important to understand that art is an illiquid commodity that doesn’t consistently give convenient exit points. This isn’t to say its impossible to flip art, but you should be ready to buy and hold a piece for an indefinite amount of time.

If you’re able to buy the right art works at the right time you can see an increase in value that dwarfs anything you’d find with conventional financial instruments. Its harder than it sounds, but its very possible to develop an edge in the art market. As with any investment, you must do your research (or pay somebody else to do it for you) and understand the risk associated with it.

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