Investing in works of art: where to start and what the risks are

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The largest private collections of works of art were created by connoisseurs of beauty, real connoisseurs, who were guided not by the thirst for profit, but by the joy of being involved in the world of creativity, even indirectly. But when we find out at what price another masterpiece went under the hammer, the question arises: “What prevents me, for example, from being a successful seller?”

Investing in art and collecting for the purpose of subsequent sale requires special knowledge and smacks of a kind of elitism. In this article I will try to talk about the main patterns and trends in the development of this area, although I cannot call myself an expert in this field.

Five rules for investing in art

To start investing in art, you need:

follow trends in the art world, be aware of what era and style are currently relevant and which artists are in demand on the market, who is bought most often;
conduct your analytics over the past 10 years: compile a top list of best-selling artists. View sales statistics: when and for how much the paintings were purchased and when and for how much they were sold;
follow art indexes, for example, Sotheby's Mei Moses and ARTIMX;
Once you have decided on the artist and, accordingly, his work, you have a choice of how exactly you will purchase the work of art. You can contact the artist directly, contact the gallery with which he collaborates, or bid at the auction where he is exhibited;
Before purchasing a work, you should ensure its authenticity. You can use the services of a specialist from an auction house or gallery, or you can also turn to the services of an independent expert.

What to invest in

To begin with, the investor should decide which direction is of interest to him. This will make it easier to explore a narrowly themed market and, in addition, have fun.

Art rises in price slowly, so the first thing to buy is something that will be pleasant to look at.

On shore, you should decide on the initial budget:

If you have a lot of money and useful connections in the art world. The most promising option: You choose famous artists, actively buy their works at auctions and confidently wait for the moment to sell. A win-win option would be Botticelli, Rembrandt, Tritian, Monet and other popular modern masters of painting. Such works, at a minimum, will not lose value.
If there is little money, but there is a desire. Here you can search for young promising authors and purchase several high-quality works from them. Try to resell the purchased canvases and order new ones. There is a possibility that the work will gradually gain in price, and the chances of profit will increase.
If you don’t have the funds, but you understand the topic . In this case, you can find a list of lost paintings that have a certain value and go in search of them. Many people don’t even realize that real works of art are stored in the basements and attics of their old dachas and houses. You can also find a specialist who will provide support in this matter.

Works by young authors

Gallerist Rebecca Wilson has compiled a list of underrated, but young authors with high potential and attractiveness from an investment point of view:

Ben Gooding, USA. The cost of paintings is 1,000 – 3,500 dollars.
Claire Price, UK. Abstract works have prices ranging from 1,000 to 5,000.
Louis Fratino, UK. The cost of work ranges from $250 to $5,000.
Michael Covello, USA. Price – from 650 dollars to 3,000.
Pippa Young, UK. Photo paintings cost from 1,500 to 2,000.

Among Russian artists we can note:

Oleg Dou. The cost of paintings starts from $10,000.
Egor Koshelev. Prices - from 2,000 to 10,000.
Ivan Plyushch. The cost of paintings is from 5,000 to 8,000.

It is worth noting that Russian investors rarely pay attention to paintings by young authors - contemporary art is gradually replacing traditional art. Nowadays, art objects, installations, video works and other works in which a touch of the future is felt are more in fashion.

Investing in young people is not only a profitable investment, but also an opportunity to become a collector who “guessed” the trend.

Among the authors introducing contemporary art to the masses are:

Anastasia Drozhkina and her print on fabric.
Oleg Kroitor with video art and photographic recording of performances.
Dmitry Kavarga, who works in the now popular genre of science art.
Ilya Dolgov with drawings on paper.

Prices for their work are now mostly within 100 thousand rubles.

Paintings by famous artists

This is a more profitable and reliable investment option. According to co-owner Alexey Ananyev, the market for Russian realistic art is very stable and the cost of such works is only growing every year.

There is no reason not to trust the words of a successful businessman, because his collection of paintings by Russian realists includes more than 5 thousand works, the total value of which the owner prefers not to disclose.

The rating, compiled by a portal dedicated to art investments, included artists with the best growth rates in prices and profitability:

K.S. Malevich.
M. Rothko.
V.V. Kandinsky.
K.A. Somov.
V.A. Serov.
I.I. Mashkov.
I.E. Grabar.
K. Razumov.

These are world-famous names whose works cost a lot of money and do not stop getting more expensive every year.

For your information! The more famous the artist, the greater the risk of running into a fake or low-quality copy. Before investing in any work, you should consult with a specialist.

Investing in alternative art

If for some reason you don’t want to invest in contemporary art, you can go a different route.

Film posters from the 30s, 40s and 50s are popular and gradually increasing in price. They can be purchased for 30-40 thousand rubles.

The cost of books has now dropped sharply, which means it’s time to buy rarities. If you manage to find the first editions of Mandelstam or Akhmatova, you can almost certainly expect their prices to rise in the future.

In addition, you can pay attention to antique dolls, glassware, mammoth bones or Kuznetsov porcelain.

Why does a businessman need art?

It is recommended to form an investment portfolio not only from one type of securities belonging to only one company, just as it is not recommended to form a portfolio containing exclusively securities, even if from different companies.

Investing in art allows you to reduce portfolio volatility, hedge against inflation and increase the chances of portfolio investment success in difficult economic conditions. The use of artistic objects as an investment asset is becoming an increasingly relevant technique. Like investing in precious metals, investing in art has also proven to be an anti-inflation tool.

Photo: author’s archive

Art is now a real asset, that is, you can be sure of its real value. If the purchase of a painting was deliberate, such important parameters as the era, style, name of the author, and his current demand were taken into account, then there is no doubt that you will make a profit, it’s a matter of time.

If we consider investments in art not as part of an investment portfolio, where the percentage of investments, compared to securities, is much lower, but, for example, as a “purchase-resale” scheme, then you need to understand that the minimum investment here will be about 10 thousand dollars.

By purchasing works by sought-after artists, you acquire collector status, which will allow you to take part not only in open and public auctions, but also receive invitations to closed auctions.

The more actively you invest your savings in art, the higher the likelihood of getting into private auctions of the most famous auction houses, such as Sotheby's and Christie's, and becoming their regular clients.

In addition to the fact that investing in art is economically profitable and more stable in times of crisis than investing in the securities market, and is not inferior to them in terms of status, it also brings aesthetic pleasure. You are also making an important contribution to the country's cultural heritage.

For example, Roman Abramovich and his ex-wife Daria Zhukova in 2010 made the modern first project of the Iris charitable foundation for the development and support of art, founded in 2008 by Zhukova. In turn, large corporations collect art that supports their corporate style and image as a whole.

Kaspersky Lab acquired one of the bronze “Triumphal Elephants” in corporate color, the author of the sculpture is Salvador Dali. The sculpture went under the hammer at an auction in London for 25.3 million rubles.

Moreover, it is an excellent tool to stimulate creative thinking, which is equally important for a bank employee or top manager, as well as for a designer. You can control the work atmosphere by choosing paintings from classic or contemporary artists.

If you buy contemporary art, you are undoubtedly providing invaluable support to as yet little-known artists. Currently, such support is extremely important; it allows us to more actively stimulate and influence the formation of the Russian art market. After all, if there is demand, then there will be supply.

Recommendations for choosing galleries and paintings

Much depends on the era, genre, artists exhibiting the work in which you are interested. The reputation of the gallery also plays a certain role in the choice. It is worth visiting the gallery’s website first and evaluating it from the point of view of information content. Information from outside will not be superfluous: reviews from collectors, opinions of artists and art dealers.

One gallery can contain both worthwhile paintings and unpromising ones. It is impossible to determine exactly how much a piece of contemporary art will cost in 5-10 years. There are too many different factors that are difficult to predict. Nowadays it is impossible to find appraisers who specialize specifically in contemporary art. They simply don't exist.

Choosing a little-known artist means there is no guarantee that you will be able to make good money on the resale of his paintings. On the other hand, paintings by novice authors are inexpensive, and if you observe the work of a young artist for a long time, you can quite accurately determine his prospects.

How to understand that an investment will bring profit?

In practice, a special stock art index of painting profitability is often used - the Mei Moses All Art index. In 2021, the rights to it were bought by one of the main auction houses - Sotheby's. The index allows you to track the return on investment in the art market in relation to other assets (securities, precious metals, etc.).

Photo: author’s archive

The uniqueness of the index lies in the fact that it allows you to accurately predict the cost of a work of art. The methodology is based on a database of re-sales of art objects, which have been collected around the world since 1810. The index shows the return and volatility of investments in art compared to investments in other assets.

Among the disadvantages of investing in art, it must be emphasized that it is impossible to predict which era will become popular in the future. For example, you purchased a painting by a master of classical or modern styles and at the moment his works are popular, but there is no guarantee that in a year, five or ten years they will not fall in price.

Not every collector is an investor

Until relatively recently, the demand for art objects was dictated primarily by collectors, who set prices at auctions. Buyers' interest was mostly focused on masterpieces by recognized masters of painting, and to a lesser extent by sculptors and jewelers. However, in the 80s of the 20th century the situation began to change. Galleries specializing in investing in art objects have appeared; not only collectors, but also financiers, who have seen enormous potential for growth in the emerging new market, have begun to show interest in this area. Art has become not just creativity, but also an independent investment direction with its own patterns, understandable only to a narrow circle of experts. Moreover, a separate category of art “market makers” has emerged, whose activity is to create and maintain new trends. At first, this process developed chaotically, it was not characterized by professionalism, which led to the formation of a “bubble” in the market. In 1991, it burst, many participants left the market, and those who remained took into account the mistakes of others.

Modern investors in art objects are far from the romance that forces collectors to spend a fortune on the purchase of another masterpiece. Undoubtedly, paintings by Rembrandt and Van Gogh will always be in value, but how will their value increase, for example, in 20 years?

The past centuries have already squeezed out everything possible from demand, and therefore these paintings have taken their places in museums and private collections, and these places very rarely change. Therefore, gallery owners create and competently promote new names that are not yet known to anyone. A painting by a young author, sold for $1,000, may in the foreseeable future cost 100 times more, which is unlikely to happen with a world masterpiece. The most striking example among the trendsetters in the investment painting market is Larry Gagosian. In the late 70s, he began by reselling cheap posters, which he decorated with elegant frames. Demand was surprisingly high and steady. A little later, Gagosian created the Broxton Gallery in Los Angeles. In 1979, with Larry's move to New York, the modern history of investment painting began - this is a special type of art that has no analogues.

Styles and approximate guidelines in it are formed not by the artists themselves, but by the customers. If an aspiring artist ends up in the “incubator” of the Gagosian gallery network (gagosian.com), his fate is sealed: world fame is guaranteed, and with it, a rapid increase in demand for new paintings. Don't think that investors are fine connoisseurs of art. But the point is that the Gagosian brand in painting is similar to the Buffett brand in the stock market. Investors focus on the expected yield curve.

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By purchasing a painting from the Gagosian Gallery (by the way, it’s already quite expensive), they expect to sell it in the foreseeable future for many times more. How this will be achieved is a separate question, but this is no longer their concern. Professionals get down to business, earning literally every dollar. Speaking of prices, we should not forget that although works of art, unlike stocks, do not depreciate to zero, waves of rise and fall in demand (and with it prices) are also characteristic of it. During periods of financial crises, priorities change, when high-risk instruments lose their attractiveness, and traditional values - gold, silver, precious stones and masterpieces of art - appear on the scene.

How much can a painting cost?

The cost of a painting greatly depends on the quality of the work, size, genre and technique, as well as the time spent on its creation. A significant role is played by the country in which you purchase this or that work of art, whether the purchase is made through auction or directly from the artist himself.

For example, at a recent auction on June 3 at the Christie's auction house, a work by Kuzma Petrov-Vodkin went under the hammer for £9,286,250, when the starting price was set at a million pounds.

As for contemporary Russian art in the realities of the Russian art market, artists are often forced to sell their works at low prices; paintings can be bought for 5 thousand rubles. On the one hand, in a developing market, this is a good investment for an investor. On the other hand, in order to make money for an artist, he should look for access to already established markets, for example, the American or British.

At the second auction in our gallery, we began working with buyers from the United States, and at the third, with French collectors, which allowed Russian young artists to monetize on the Western market.

It is important to remember the resale tax. If a work of art is owned by a collector for more than three years, then income from its sale is exempt from taxation. If less than three years, the tax rate for residents of the Russian Federation is 13%. However, it is possible to take advantage of a tax deduction.

How to determine the cost?

The final cost of a painting depends not only on its quality, genre, technique, but also on the biography and merits of the artist. For example, what educational institution the author graduated from, where he organized exhibitions and in which galleries his works are stored. The price is also influenced by the historical and cultural value of the work, the degree of preservation of the canvas, the presence of various awards and the recognition of the author among collectors. Determining the real cost of work is complicated by the fact that the price reflects both objective and subjective factors. In addition to the genre, state and intentions of the author, what is important is what emotions the work evokes. To determine the value, it is recommended to compare the purchased work with other works that have a similar history and intent.

How do you know if an investment is really worth it?

It is impossible to estimate the value of contemporary art. It is too different and currently there are no specialist evaluators of young art.

On the one hand, no one will give you guarantees that by buying the work of a little-known artist, you will make a big profit after a while. On the other hand, if you carefully monitor young artists, you can roughly understand whether this master will become famous, and therefore whether his works will increase in price.

Photo: author’s archive

Purchasing art objects inevitably entails additional expenses. In Russia, the assessment of the authenticity of a work can range from 7 thousand rubles, but the final cost depends on the specific case.

To transport paintings to another country, it is necessary to obtain export permits and properly pack the work. There are art mails that solve these issues on a professional level. With them, you can insure works of art and provide the necessary conditions for storage until the expected transportation.

Investments in works of famous artists

If your capital allows you to allocate large sums for investment, then you should think about purchasing paintings by famous artists. The cost of the work can be several million rubles or hundreds of thousands of dollars. The works of famous masters never fall in price, but only increase. The main feature: the higher the cost of the painting, the easier it is to sell it.

Image taken from newbusiness.su

How not to buy a fake?

In order not to run into a fake, you should follow the following recommendations.

Do not buy paintings online at small auctions.
When purchasing a work, request existing expert opinions.
Every major gallery or auction house must have its own specialist in assessing the authenticity of a work of art. And in order to avoid purchasing a fake, you should not neglect the services of such specialists. In addition, you can use the services of third-party independent experts.
Require confirmed provenance (history of ownership of the work of art).
If in any doubt, it is better to refrain from purchasing. There will still be a chance to purchase a decent original, but the opportunity to return money for a fake is not a fact.

Tax system

According to some parameters, our country can be called convenient for collectors. But in other aspects, tax legislation in this area is imperfect.

Let's look at what collectors and investors pay taxes for:

There is no wealth tax.
There is no inheritance tax on a work of art.
Resale tax – 13% for ownership period of less than 5 years, absent for ownership period of more than 5 years. When calculating the tax base, you can get back a tax deduction in the amount of 250,000 rubles.
There are no tax benefits for donors and patrons.

It is also worth considering taxes on the import and export of works of art.

Tax on commercial import of works of art:

Commercial import for individuals – no tax if the product value is less than $10,000.
For prices over $10,000, the import duty for commercial use is 30% of the cost, VAT 0%.
When imported for personal use, it is not subject to tax (subject to declaration).
For legal entities, the import of “cultural values” or “cultural items” is subject to VAT of 18% of the cost; customs duty 0%.

The export of works of art aged 100 years or more from Russia is prohibited.

How does the purchase happen?

If you want to purchase a painting, you can do so either at auction or directly from the artist. It happens that it is impossible to get in touch with the author, that is, there is no possibility of direct communication without an intermediary, and that same treasured painting is exhibited only at auction. Perhaps the collector, in principle, likes to take part in auctions, and then he makes purchases of works of art only during auctions.

Photo: author’s archive

Buying a painting by a private person does not mean that it will be hidden from the public eye. Many owners of works of art are happy to provide exhibits from private collections for participation in exhibitions in museums and galleries.

Thus, quite recently, the exhibition project “Viva la Vida. Frida Kahlo and Diego Rivera. Paintings and graphics from museum and private collections.” In addition to paintings from gallery collections in Mexico and the United States, Diego Rivera's grandson, Juan Coronel Rivera, provided works from his private collection for this project.

Additional expenses

Purchasing art objects involves additional costs. Russian collectors pay from 7 thousand rubles to assess the authenticity. The cost of the service can be much higher, it depends on the complexity of the work and the technologies used. There is no point in counterfeiting cheap paintings, but among paintings in the mid-price range and above, the chance of stumbling upon a fake is about 50 to 50.

Permits will be required for transportation to another country. In addition, it is important to pay attention to the correct packaging of the painting. There are special art mails that professionally solve these issues. They also arrange insurance for artistic works and provide suitable storage conditions before transportation.

Resale of paintings is subject to tax, but this only applies to works that were owned by the collector for less than 3 years. Residents of the Russian Federation pay tax at a rate of 13%. The situation is somewhat brightened up by the possibility of obtaining a tax deduction.

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Where is the best place to invest money in 2021?

Financiers recommend investing in the Internet in 2021. That is, turn to options for profitable passive or active earnings online.

But the leader in terms of reliability and profitability is investing in real estate in million-plus cities and resorts, and precious metals.

If you decide to diversify your investments, choose several options from the list:

buying a property;
purchase of precious metals in the form of an impersonal metal account;
opening a business;
PAMM account management.

Each of the listed options has minimal risks and at the same time guarantees a stable income.

Advantages and disadvantages of investing

Accessibility: anyone can become an investor;

Lack of geographical reference;

You can start with a small amount and gradually increase momentum;

Obtaining additional income (airbag, financial freedom);

Unlimited profit;

A variety of investment instruments with different levels of risk;

Various types of investments depending on investment objects, timing, form of ownership, level of risk and goals;

Portfolio diversification as an effective way to protect against risks;

An abundance of information for training and development in the industry;

The opportunity to monitor the activities of successful investors and learn from their experience;

Improving personal financial literacy;

Protecting savings from inevitable inflation.

Investments always involve risk: losses are inevitable (of part or all of capital);

Availability of initial capital (potential profit depends on its size);

No guarantees;

It is impossible to predict profitability in advance;

Most often, it takes quite a long time to make a profit;

Part of the profit goes to pay commissions to the exchange and broker, consultations with professionals, etc., and other additional expenses;

The need for training and self-study, in-depth market research and regular information updates.