Investing in art

The best alternative investment:
Art or Gold - Page 3

Transaction costs

Transaction costs for art are the highest for any asset type. Buying a piece of art could require a commission of over 25% and selling art over 10%. For buying and selling gold (coins and bars), the commission or markup will be between 5% to 10% of the spot rate depending on the dealer and the size of the transaction. A ten pound purchase of gold would probably get you under 5% markup over spot; ten ounces might be closer to 10%.

Maintenance Costs

The great majority of art collectors display their art at their home. Unless you are a major collector with a million dollar collection, you probably won't need a curator to oversee the collection. The most significant maintenance cost is for insurance. Art insurance is one of the most inexpensive kinds of insurance with premiums between 2% to 5% of the appraised value of the collection. A $100,000 collection will cost the collector about $400 a year, but most insurance companies require an initial appraisal which can cost several hundred dollars depending on the value and number of the pieces.

Physical gold can also be stored in the home. There are many ways to store the gold. A high-end physically attached save may be the safest, but other experts recommend the owner to simply hide the gold. Insuring gold coins and bars can be a challenge whether the gold is stored in your home or out of your home. Homeowners insurance rarely covers high dollar precious coins and metals. The premium for additional coverage on these items is calculated on the degree of risk determined by the insurance underwriter.

Perhaps, the safest alternative for storing physical gold is place the gold in a bank safe deposit box or to use a private depository that specializes in precious metals. A standard size safe deposit box can easily store $100,000 in gold coins or bars, and the cost would be about $100 a year. Insurance is probably unnecessary, and in many cases unavailable. The annual cost to the store the art in a private depository is a bit higher at 1% to 2% of the appraised value.

Non-pecuniary factors

As a purely investment function, the high transaction costs and liquidity limitations of art make it an inferior investment opportunity compared to gold. Projected rates of return and financial risks are comparable. However, there are non-pecuniary advantages to art that no other financial investment provides: the aesthetic pleasure of viewing the art. For those who enjoy flouting their wealth, a beautiful art collection will make such an impression on visitors to the home.

There is also the pleasure of successful speculation. Selecting and securing the work of the right artist can result in financial returns much higher than the average rate of return for art.Finally, there are the social pleasures that accompany art collecting. Galleries cater to collectors, and in many cases there is also an opportunity to meet the artists. For many individuals these non-pecuniary factors outweigh the negatives of investing in art.

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Vincent van Gogh
Investment Art Profile


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