The Different Benefits And Risks To Investing In Art
In contrast to stocks, bonds, and real estate, investment in art and collectables is known as making an alternative investment. While art is typically included in the collectable category, it will be used as a separate item for the purposes of this article. While investment in collectables and art can be beneficial, there are certain considerations that need to be made before purchasing these assets. This article will provide information on the different advantages and risks of investing in art.
What Are The Different Benefits To Investing In Art?
1. Tax Benefits
While it is not common to see the terms “tax benefit” and “collectables” in the same sentence, it is possible to receive tax benefits for art purchases if you fall into a particular tax bracket. If you are positioned in a tax bracket above 28%, the maximum amount you will pay on any sale of art will remain at 28%. Of course, this is still a high percentage; therefore the term “tax benefit” remains relative to a person’s budget and financial situation.
K Partners a local accountant in South Melbourne offers a personalised approach to manage your tax affairs and helps you manage every aspect of your personal and business accounting needs.
2. Uptrend
In recent years, art and collectables were in an uptrend with record prices becoming more standardized. Of course, a change in investment is constantly changing this will change; however, it will return to a trend again. This means that hanging onto an artwork can be a long-term benefit if you are willing for trends to turn.
3. No Sensitivity To Interest Rate Fluctuations
The majority of investments are sensitive to interest rates, but art and collectables are not – at least not directly. If the interest rate increases, the investment gain will decline; thereby leading to a reduction in disposable income levels. On the other hand, a rising interest rate does present with other investment options meaning there will always be a buyer for artworks.
If you are not sure if an artwork investment is at good value, there are independent financial advisors that can help.
4. Alternative Usage
If you purchase a painting, it is not necessary to keep it as an investment option locked away in a bank; however, you can enjoy the art as an alternative item. When purchasing bonds or stocks it is not possible to use them for entertainment purposes, but art and collectables can be displayed on a living room wall and enjoyed.
Here’s an interesting video regarding on investing in collectables:
What Are The Risks To Investing In Art?
1. Experience Is Costly
If you want to have a good experience investing in art and collectables, then you will need to lose money initially. The best experience to learn how to buy and sell collectables is trial and error so be prepared to lose money in the beginning.
2. Possible Asset Destruction
Unlike stocks and bonds, collectables are at risk of damage when there is a fire or flood in the home. If the art is damaged, the value of the collectable reduces immediately to zero or at least 50% less than what the purchase amount. To ensure you do not suffer from asset destruction, it is recommended that you plan accordingly. Learn more about K Partners here.
Final Words
As can be seen, buying and selling art can be an enjoyable experience; however, there are risks as well as benefits. Using the information above, you can determine if this asset purchasing is the best act for your needs. For additional information about investments, you can talk to financial experts for accounting tips.
