Art and collectibles are classified in the world of wealth management as alternative investments. An explanation of alternative investments is best given next to an explanation of traditional investments. Traditional investing tends to involve holding positions in stocks, bonds and cash, usually for extended periods of time. These asset classes tend to be widely understood and popular with the general public. Alternative investments include more specialist assets such as hedge funds, private equity funds, real estate, infrastructure and commodities. Art and collectibles fall under the alternatives umbrella and high-net-worth individuals (HNWIs) are increasingly diversifying their portfolios to include these types of assets.
Why Consider Art and Collectibles as Investments?
Art and collectibles may be considered as investments for a variety of reasons. Some investors are attracted to the fact they are taking ownership of something tangible that can rise in value. These investments are often attractive to someone with a passion for the asset type. Whisky enthusiasts or art lovers may jump at the chance to own something that has emotional or aesthetic value for them personally. Investing in art or artwork is a popular activity amongst HNWIs globally. Certain art or collectibles may outperform traditional investments, although it is important to discuss the potential returns with your wealth manager before investing. These types of assets may also hold a certain attraction for investors looking for portfolio diversification or a strong hedge against volatility.
Types of Art and Collectibles
The world of art and collectibles encompasses a wide spectrum of different potential investments. Works of fine art can largely be divided into paintings and sculpture for art investors, but modern art famously transcends boundaries and can expand what is categorised as investable art. A collectible is generally defined as an item that is worth more than its initial value. If something goes down in value over time, it has less appeal to a collector. Collectibles can include everything from stamps, toys, baseball cards, clothing, books and just about anything that appreciates in value. Some of these items can be worth large amounts of money and hold a lot of appeal to investors. The emergence of digital assets such as NFTs has added a modern layer to the collectibles universe.
Key Risks and Considerations Before Investing
Investing in art and collectibles is not always straightforward and speaking to your wealth manager beforehand is a good move. One of the main risks is uncertainty around authenticity. Doing proper due diligence on an asset is important before investing. It is also important to look at the liquidity of the asset, or put simply, how easy it is to sell. Storage and maintenance costs may be more than expected so being clear on this beforehand is advisable. A savvy investor should also look at insurance and tax. Capital gains tax and inheritance tax may apply to art and collectibles so being clear on what you could owe is vital. You should also make yourself aware of any cross-border complications if, for example, you have tax obligations in both the UK and the United States.
It should be borne in mind that art and collectibles are not subject to financial regulation and there will therefore be no regulatory protection if things go wrong.
Whatever asset class you choose to invest in, you should always be aware that the value could go up or down. Art and collectibles also have the added risk that their value can be subjective. Buying or selling art and collectibles may also come with significant one-off transaction costs.
Tips for New Art Investors
Investors that are new to the art and collectibles world can ensure the process runs more smoothly by taking note of a few key tips: always work with reputable galleries and auction houses; make sure to consult professional art advisors and legal experts when entering the market; focus on the quality of assets over the quantity; diversify your portfolio to manage risk and stay informed on the latest market trends and exhibitions.
How We Can Help
London & Capital can provide support to clients considering alternative investments such as art and collectibles. Whether someone likes to invest in paintings or pursue investments in a specific collectible, we can assist. Investing in art and collectibles should be just one part of a wider financial plan.
Get in touch with us today if you would like to discuss art and collectibles with one of our experienced wealth managers.
