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The Art Of Investing In Fine Art

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For investors seeking a new asset to invest in, the $66 billion global fine art market could be the alternative investment you've been looking for. With auction prices for some works reaching multi-million dollar figures, the art market has proven time and again to be a lucrative industry for some, and the wealth management world is increasingly taking notice.

The Benefits of Investing In Art

Evidently, savvy art investors have done well for themselves over the past decade when compared to investors in more traditional asset classes like stocks or bonds. During this period, fine art as an investment asset class has outperformed most traditional investments vehicles with the exception of U.S. stocks. Those holding either post-war or contemporary Chinese art have outperformed all traditional asset classes by at least three percentage points.

The Fine Art Market Is Highly Manipulated

Valuation is perhaps one of the biggest obstacles to successful and fair investment in fine art. The industry's heavy reliance on the traditional gallery-focused model still poses some risk to even veteran investors.

In this model, a handful of Western collectors, art galleries and museums dominate the fine art market in a game that would perhaps be considered blatantly illegal in most other markets. Transactions are conducted in secret, and high-profile, “taste-making” collectors that can significantly boost the value of a work are given priority on often steeply-discounted purchases.

Fees and Taxes: Fine Art Investment's Hidden Costs

Transaction, maintenance, and collection management –in addition to taxes – also pose a legitimate barrier to entering the market. A buyer's premium paid at auction can cost a collector 15% to 25% of the hammer price, while sales taxes on the premium in the U.S. tack on an additional 8.375% to the sale price, according to the Wall Street Journal. With insurance, travel costs, and maintenance, collection management and appraisal fees, art investors can expect to add 1% to 5% of the value of the work annually.

Art Funds: Fine Art Investment Without All The Costs

For those interested in art investment but not keen on paying the steep fees and costs associated with doing so, an art investment fund like London-based The Fine Art Fund Group may be a bit more your style. Investors to the group's funds have the option of borrowing works of art for their personal use.

Still, making an investment into an art fund isn't cheap – The Fine Art group requires a minimum investment of between $500,000 and $1 million, making investment minimums like Personal Capital's $100,000 minimum investment look low.

Ultimately, fine art – or, art created exclusively for aesthetic engagement – is just that for many art buyers. Matters of monetary value pale in comparison to the intellectual and even spiritual value gained by adding a new painting, sculpture, or character doll to one's art vault. Always buy art because you truly enjoy it. Otherwise, in a down market, you may end up an unsellable eyesore on your hands.

The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

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