Paintings, Why They're Worth Considering

Art is a very interesting form of investing, something that can be enjoyed on your wall, while potentially increasing in value. There is significant potential for growth in selected artwork with risks that are not shared with conventional market investing.

Art for investment can range from under £1000 in value to hundreds of thousands, if not millions. So, for someone with money to spare, as well as some wall/storage space, buying a painting might be a reasonable move. Research done by The Maddox Gallery Art Advisory, one of the most successful British galleries, found that 2020 saw an average return of 31.1%, and a 4 year average of 26.6%. During the Covid 19 pandemic, when many were keeping to their homes and the markets were wavering, these returns were surprisingly strong. However, these statistics are based on high value pieces, and unless you have a keen eye for art investment or are lucky with an emerging artist, the returns might well be more modest.

Unless you are an artist selling on your own work, the primary market for art requires an expert eye and experience to predict how an artist's career (and the value of their work) will develop. For most investors, the secondary market is where most money will be made, holding pieces over the longer term, or buying them at less than their market value. The secondary market can be easier to predict if you base your purchases on trends even if it won't necessarily provide the biggest gains. As an example, the primary market is like investing in a start-up and the secondary market is like buying stock in a well-established company.

Artists can be classified into 4 groups: novice, emerging, established and the blue chip. A novice artist is someone just starting to produce work, selling it for income without much recognition. This artwork in this category is highly driven by quality and the artist's recognition. These pieces in my opinion should be bought simply to enjoy, as predicting value at this stage is extremely difficult.

Emerging artists are still in the early stages of their career with their work starting to become noticed. The primary market is their main field of play with pieces starting to appear in the secondary market. Winning awards is a good sign of an artist's emerging status and something to look out for. Emerging artists is a very popular sector for investment, as pieces are usually more affordable but have critical acclaim to set them above emerging artists’ work. You can often find high levels of return in this category, but the market can still sometimes become stagnant.

Established artists are well known in the art community and markets, with their investment possibilities easier to recognise due to a more extensive track record of sales. Prices here start to rise greatly, so you will be looking to spend thousands on these pieces. In this category the quality can be more reliable and will be promoted not only by galleries and collectors but also the media. A good example of an established and celebrated artist at the moment is Banksy, whose work has appreciated by some 200% or more over the last 3 years. For an artist of this stature, even (limited edition) prints of his work can be an excellent investment.

Blue chip artists are the cream of the crop. Massive price tags usually follow these as the artists by this point are widely known, even to the general public. The majority of these artists are no longer alive, so the lack of new artwork restricts supply, and can drive appreciation in value. Return after the initial growth of a piece after the artist's death does tend to decrease as the price is then established; demand will then only grow if the supply is restricted further.

I started to look at investing in art a couple of years ago, and I have found it both interesting and enjoyable. I have much to learn, but I have been really pleased to find the average return has been 41.17%. At the time of writing, I haven't actually sold any of the art I have bought, so that return is only based on the appreciation in list prices, but it still may be useful as a broad indication. I do know for a fact that I have got too attached to at least one piece to view it purely as an investment, something I would happily sell. However, I have gained something I love, so I don't see it as a loss either!

Another thing to consider when buying art is your liquidity. It’s always good to have a reasonable sum of easily accessible money, to help when life inevitably decides to throw you a curveball. Art is not that! Finding a buyer can be a long process, so even if you anticipate a good return, liquidating the asset is something that will require some patience.

I also am very sceptical about art valuations. I am basing my view on listings provided by the galleries I bought them from (which also offer re-selling the pieces on customers’ behalf at a later date). The issue with this is that this doesn't include the galleries cut on the re-sale price. Working from talks I have had with both the companies I have used and others such as the Maddox gallery, I would say an average of 15% is taken, taking my actual portfolio profit down to 26.17%. Also, capital gains tax is payable (above the 2022-23 allowance of £12,300), unlike for example, investing in an ISA.

There are also other costs to consider when buying art. Depending on the value, there may need to be amendments to your home insurance, or you may need to think about paying for secure storage. These costs can add up over time, particularly for large/valuable pieces, so, before buying it is worth checking with your home insurance to find out what is covered, as you don't want to have a nasty surprise once you have purchased, or find they were not covered if they are stolen or damaged.

All this considered, I have still found investing in art to be profitable, the majority of my prospective gain is coming from work by Bob Dylan (bought from Castle Fine Art). Dylan is critically acclaimed for his art and status as an icon of the music world, which adds to the appeal of his work. I am also a massive fan of Tom Butler's work (from Whitewall Galleries) which I have genuinely fallen in love with! The added complexity of his collage work while also showing the landscape subjects faithfully is truly remarkable.

To date I have made my purchases from Castle Fine Art and Whitewall, two of the most established art galleries, but I have also been looking at the Maddox Gallery which offers a service more suited to investing rather than simply buying artwork. Maddox offers a personalised investment experience which advises on the buying of pieces, facilitates the purchase, tells you when they think is the best time to sell, and finally facilitates the sale. They take a cut of the profit after the selling of a piece, so there is a shared interest in selling at the optimal time and price.

Thanks for reading, I’d love to know your thoughts, so please feel free to drop a comment.

Disclaimer

​I am not a financial advisor and opinions on any of the forums or blog posts are also not financial advice. Users should not rely upon this information to make financial decisions. All invested capital is at risk from fluctuating market trends. Refer to all terms and conditions of any credit, investment or banking account before submitting an application. If you have any doubts about anything stated on this site, you should seek advice from an independent financial advisor as I cannot give personalised financial advice.