Investment Art

Financial analysts report that the stock market has experienced declines for the last three years. In light of this uncertain track record, investors are looking for alternative investment sources. And many are turning to local art galleries for tangible investment opportunities -- Investment Art -- to diversity their holdings.

Art collectors have long known that artworks purchased judiciously can be enjoyed for long periods of time and later donated or sold once these accrue in value, thereby earning cash dividends or tax credits.

Investing in art is a time-honored tradition dating back to the Renaissance and families like the Medici, known for their patronage. But investing in art is not just for the rich; today it is a consideration for the average investor. Galleries like 2nd Floor Gallery in Mechanicsburg specialize in affordable investment art and in helping art lovers find artworks that suit their values.

What is Investment Art? Investment Art is fine art that is purchased and retained with the intention of a future sale at a higher return. Like equities, investing in art is about buying low and selling high. Unlike investing in stocks and money markets, artworks rarely decrease in value. In times of weak stock market showings, a piece of artwork purchased for aesthetic values returns with personal enjoyment and potential financial returns down the road.

A 2001 study by New York University found that, over the past 50 years, artworks have earned an annual return, after inflation, of 8.2 percent. The annual return generated from the Standard and Poor's 500-Stock Index during the same period was 8.9 percent.

What criteria should be used when selecting Investment Art? Investment Art is a long-term strategy for diversifying an investment portfolio. By far the experts agree to the following criteria when selecting art as an investment:

Invest in artwork that you enjoy. Even the most lucrative investment art pieces take time to appreciate in value. The investor should enjoy looking at it while they own it. While some investors get emotional about their stock portfolios, stock certificates won`t give them the same aesthetic pleasure as a piece of fine art.

Invest in artwork that represent quality workmanship. It is wise to research the portfolio and history of an artist's work as well as how the artworks have been valued. The worth of a piece will fluctuate over time according to the demand and interest in the particular artist, style or medium.

Invest in the works of artists that show originality. Signed originals and limited edition pieces are important standards. Also, look for whether an artist has a unique, identifiable style and the type of attention the art world is paying to the work.

Keep up to date on art interests. Art is a business that requires research just like the corporations in which investments are made. Visit galleries, read art magazines and follow the coverage of the art world in the news media to get to know more about the business.

If an investor purchases a piece of art with these criteria in mind, they will have a piece of art they enjoy; it will retain its value or increase over time; and if they decide to sell it, they can look back and appreciate how it enriched their life for the 10 to so years they held it in their home or office. Experts caution that while investors are urged to buy art that they like, they must also be prepared to sell when the time is right. It is an investment.

Many companies and corporations enhance their image by investing in fine art and emerging artists. They recognize that fine art can make for exciting and relaxing work spaces for employees and consumers alike. These companies may sell these works later and enjoy a high return on their investment. Individuals, corporations as well as educational institutions acquire artwork as investments.

What are the financial implications of Investment Art? Fine art can be a profitable and enjoyable investment. There is no cost in holding an investment in art.

Investors need to understand the capital gains implications of buying and selling art. Similar to buying and selling real estate, capital gains tax applies to the sale of a piece of investment art that has accrued in value and is being sold at a gain over the original purchase price.

There may be a financial incentive in donating works of art to cultural organizations and educational institutions to receive a deduction come tax time.

If artworks are purchased as aesthetic elements for an office or establishment, like equipment or furniture, these pieces may be depreciated. But sale of the art pieces would still be considered a gain for the establishment down the road.

Insurance issues are also a consideration when collecting art for personal or investment purposes.

These are just a few highlights to be aware of. Check with your financial advisor for more details about how investing in art might be a valuable asset to your investment portfolio.

A realistic budget for beginning investors is between $100 and $1,000 for small signed and numbered pieces, $1,000 to $5,000 for larger pieces or original works. Major original works from established artists may cost upwards of $20,000.

With all the focus on returns and risks, it is important to remember that art is about aesthetics and pleasure.