top of page

Taking your next step buying art as an investment


Ramón Casas​ master copy by Matthew Davis
Ramón Casas​ master copy by Matthew Davis

In light of recent stock market volatility over the last few years, investors are wondering if there’s anything else they should be doing to improve performance. Often overlooked is the wonderful world that is the art market. Volatility exists in art as well but not felt in the same way as prices are only redetermined when approaching a sale of a specific work. Here are some guidelines for those who wish to expand their portfolio into the art market.


Due to sticky US inflation, the Fed has indicated that they may postpone a rate cut; about 20% of options traders are predicting a December rate cut^1. This may cause an unforeseen continuation of lower performance in both stocks and bonds, which have both demonstrated positive performance correlated with a relaxed Fed policy. Higher rates for longer means fewer mortgages, less lending, and in turn, slower growth in all markets. 


Art, however, can serve as a hedge against volatility in traditional markets because it often does not correlate directly with stock and bond performance. Diversifying your investment portfolio with art can reduce risk and stabilize returns, especially during economic downturns. A diversified art portfolio might include a mix of contemporary, modern, and classical pieces, spanning different mediums and geographical regions.


Art also has some tax advantages, including:


  • Deferred Capital Gains: Unlike stocks or mutual funds where you can get taxed on income while holding them, art only is taxed when the item is sold at profit, which allows for a bit more control.

  • Estate Tax Benefits: Art can be passed down to heirs or donated to museums, potentially reducing estate taxes. According to the IRS guidelines, donating art to a qualified institution can allow you to claim a tax deduction for the market value of the artwork.^2

  • Art purchases may be deductible: Small businesses may buy art and deduct the purchase as a qualified expense under certain circumstances; consult a tax advisor for details.


To pick your next piece, consider the following to create a potential for return on your investment:


  • Pick the artist as much as the art: When researching the art, consider the artist and their education, career path, and likeliness of success (it’s like buying shares in an artist instead of stock). Determine if they’re an established or emerging artist and consider their potential for future success.

  • Research the art: The secondary market art is a great way to partake in an already traded work which can expose the recent interest and general demand for such a work. Is the art rare or unique? Is it part of a limited collection? You can look up many works at Artprice or Artnet.

  • Research current trends: align your choices with current trends in the art market. For instance, abstract art may be a perfect fit for modern home interiors, while traditional pieces might be more suitable for classical settings, businesses, or institutional collections.


Art can be the differentiator for any investor and provide a physical sense of wealth rather than the abstract essence of it. Incorporating your taste in your art purchases can deepen the emotion you’d like to convey or friends, family, or clients and create a legacy that can survive many generations.


At Eureka Wealth Management, I’m a wealth management advisor with a passion for the arts, I offer bespoke art services to enhance my clients' portfolios with the beauty and potential of fine art investments. My approach is holistic, blending the joy of collecting with strategic financial planning. I can help clients through an art acquisition process, tapping into a curated network of art dealers and galleries to find pieces that resonate with personal tastes and investment objectives. 


Strategically, I integrate art into clients' broader wealth strategies, considering tax implications, charitable giving, and estate planning to ensure their collections align with their financial goals. For those inclined towards philanthropy, I facilitate opportunities to share their collections with the public or support the arts while optimizing tax benefits. My role is to ensure that clients' investments in art not only bring aesthetic pleasure but also contribute to their legacy and financial well-being, marrying the visceral enjoyment of art with savvy wealth management. You can book an initial consultation at eurekawealthmanagement.com.



Sources:

^1 FT 4/24/24: “Traders start to build bets on Fed raising interest rates”


*Consult a tax advisor

Co-written by Chatgpt



Comments


bottom of page