Starting Your Collection
Contrary to public perception, a fine art collection does not require a multi-million dollar budget. While one may restrict his/her thinking of fine art collection to being a hobby of the ultra-elite, art collecting is feasible endeavor at virtually every price-point. The purpose of this installment of Art as Investment is to introduce novice collectors to the ways of art collecting.
1. What is the primary reason for your collection?
There are countless reasons why you may want to start collecting. You may be interested in supporting your local arts community. You may be attempting to make a social, academic, or political statement. You may be interested in diversifying your financial portfolio. Or you may be wanting to surround yourself with beautiful objects. All are good reasons for collecting. However, you need to know why you are collecting art before writing any checks.
2. Set your budget.
In contrast to most other forms of investment, fine art collections are not very liquid. Most collectors should anticipate a 6-9 month turnaround period between when they decide they want to sell and when the work sells. Given this information, you should be comfortable with that asset being unavailable for an extended duration. When setting your budget, you should also consider the ancillary costs of collecting. These include buyer's premiums, taxes, insurance coverage, shipping, installation, restoration, authentication, and risk management. While not all of these apply to every object, a savvy collector should factor the relevant expenses into their art budget.
3. Determine Your Risk Profile
Now that you know why you want to collect, and how much your willing to spend, it's time to determine your risk profile. Just like with any other investment, you need to know if you want to pursue an aggressive, moderate, or conservative investment strategy. You must also determine how long you plan on holding onto these assets. These questions will determine the makeup of your collection.
For example, aggressive portfolios should consist of more emerging artists who are at the early stages of their careers. Conservative portfolios should include of established artists with a well established historical record of sales in both galleries and auction houses.
4. Decide What You Want to Collect
Now that you know your motivations for collecting, your fiscal budget, and your risk profile, it's time to decide what you want to collect. While there are countless options in this respect, it is important to keep two things in mind. 1) Don't feel as if your collection must consist exclusively of a particular style, movement, or artist. Sometimes the best collections are the most eclectic ones! 2) Don't buy art because it's 'on-trend' or because it's what you think you should be collecting. Collect what speaks to you in a meaningful way.
6. Familiarize Yourself with the Type of Art You Want to Collect
The final thing that you must do before buying your first work ok art is you must familiarize yourself with what you plan to collect. Just as you would with any other major purchase, familiarize yourself with the market. Read up on the artist or movement. Compare recent sales and current offerings. Familiarize yourself well enough to understand what is and is not a good example of the said object, and what is and is not a good value.
7. Hire a Professional
If you have plans to invest a considerable sum in a work of art, it's important to consult with an unbiased professional (i.e., not the dealer, auction house, seller, etc.) who can provide you with information as to the current and prospective fair market value of the art. Though advisory fees may seem unnecessary, a knowledgeable advisory can save a collector a fortune in the long run.