Recently, I participated in a lively panel on alternative investments for the Hedge Fund Roundtable. I’ve gathered some of the advice I offered about how to invest in art, which serves as a good checklist for new collectors. I firmly believe that you should buy what you love, but once you’ve identified a work that you love, then what? How should an art investment be treated? Here’s what I recommend – and do – for my clients.
Due Diligence: In the same way you analyze other investments prior to making an acquisition, do research on the artist: education, career, galleries, collectors, and museum exhibitions and acquisitions. This analysis can help determine if the price is correct and also the future liquidity potential of the piece.
Portfolio Construction: Identifying your goals and horizons will inform the types of art you buy. I always recommend a diversified portfolio of art to mitigate risk. If you want less risk, buy more established artists. If you are willing to take more risk, buy younger artists who are less proven but can have bigger payoffs. And if returns are not your driving force, buying what you love should carry more weight than museum exhibitions and other factors.
Protection: Taking care of your art is crucial, as any damage can greatly affect the value. Always use fine art shippers and handlers to move and install your art. They take extra care and know how to handle art, which can often be tricky. When storing your art, use fine art storage, which has humidity and temperature controls. If a work does get damaged, have a reputable conservator repair it right away. And get insurance – it’s not expensive (less expensive than jewelry because no one ever loses a painting in a gutter while walking down the street) and can often just be an additional rider on your homeowner’s policy.
Selling: Timing is everything, so it’s important to continually monitor the markets for your artists to gauge when the best selling opportunities arise. If you don’t pay attention, you can very well miss the ascent, the top and the descent. In addition, identifying your goals upfront will help determine if you should sell outright, do a 1031 exchange or donate the work to a museum or other institution. There are currently a number of tax benefits available that should be considered.
Following advice like this might sound time-consuming, but if you’re buying art as an investment, you should treat it like one. And if you are not an expert and don’t have the time or wherewithal to become an expert, you should consult with one as you would with any other investment.
Feel free to contact me with any questions about collecting or any art-related topics, including the next round of New York art fairs, which start tomorrow. Enjoy!