Simone Bilton, Associate Investment Director at Investec Wealth & Investment (UK) discusses the concept of art as an investment.
When we think of investments, most of us consider company shares. However, many clients have interests beyond deriving financial returns. The alternative asset class category includes various esoteric investments such as art, wine, and classic cars.
As proud sponsors of the upcoming LAPADA Art & Antiques Fair – a prestigious event on London’s social calendar – it feels fitting to explore the concept of art as an investment.
For many, collecting art is driven by personal tastes, interests, and geographical background. Some may have entered the art world through inheritance, now feeling a sense of responsibility toward family heirlooms. Others may have discovered art as an interest or studied its many forms over the years.
Since art can be bought and sold like any other asset, there is always potential for financial return. Collectors may seek capital return (profit) by selling pieces or collections or derive income by loaning artwork to museums, giving pieces cultural and intellectual significance. Others may enjoy art within their homes, gaining what is often called the “emotional dividend” in place of the actual dividends that traditional investors receive.
As with any investment, it’s important for clients to understand potential costs before proceeding. Art is no exception. Art carries high transaction costs, including auction fees, commissions, insurance, authentication fees, storage and transportation costs. Additionally, art sales may be subject to capital gains tax.
Another consideration is the role art can play in diversifying a portfolio. Since art is often uncorrelated with traditional assets like stocks and bonds, it can hedge against market volatility. Certain art movements, like Impressionism and Old Masters, tend to correlate with safe-haven assets such as bonds or real estate, while contemporary or Chinese art, aligns more with riskier assets like equities. However, art should complement a balanced portfolio, not act as a primary investment vehicle.
The art world is highly subjective, with valuations fluctuating based on demand, changing tastes, and the artist’s reputation. Importantly, unlike traditional investments, art is relatively illiquid and cannot be easily divided – a particular challenge when passing it through the generations.
The first step may involve attending galleries and artist events, with a view to understanding what appeals most. Speaking to those in those in the art community including avid collectors and gallery owners will provide valuable insight.
Whether driven by financial gain, the pleasure of owning beautiful pieces, or the desire to preserve cultural heritage, art can offer a unique blend of personal and financial rewards, captivating both the emotions and the portfolio.
Tax treatment depends on the individual circumstances of each client and may be subject to change in future. All statements concerning tax treatment are based upon our understanding of current tax law and HMRC practise and can be subject to change.
Your capital is at risk. Please remember that investments, and income arising from them, can go down as well as up. You may not necessarily get back the amount you invested.
