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Business News/ Money / Personal Finance/  Investing: Expensive art and wealthy people: Decoding the theory behind the eternal love story
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Investing: Expensive art and wealthy people: Decoding the theory behind the eternal love story

We are frequently in awe when we witness wealthy individuals purchasing paintings for millions of dollars. Continue reading as we attempt to explain the theory behind this

Rich people sometimes purchase art to reduce their tax burden. (AFP)Premium
Rich people sometimes purchase art to reduce their tax burden. (AFP)

The remarkable art collection of Microsoft co-founder Paul G. Allen, who passed away in 2018, will be auctioned in November 2022, according to an announcement made last month by Christie's auction house. The collection, which included works by Renoir and Roy Lichtenstein, is said to be worth more than $1 billion.

$1 Billion!!!

We are frequently in awe when we witness wealthy individuals purchasing paintings for millions of dollars. And a very common question revolves around us whenever we hear such type of news. Why do rich people buy art? Paul Allen might have had a huge inclination towards art, but is that the case with everyone else too?

The explanation could have more to do with taxes than with the art.

In many countries, tax regulations reward collectors who frequently purchase expensive art. Rich people sometimes purchase art to reduce their tax burden. Consider any country, where you would be required to pay capital gains tax if you sold an artwork and deposited the proceeds in a bank. However, selling one painting and investing the proceeds in another one is a clever technique to avoid paying taxes.

READ MORE: What is on the buy-list of super wealthy in 2022?

Additionally, for both collectors trying to hold value and investors looking to diversify their portfolios, art is a great option. The way that art is valued differs significantly from how stocks are valued. Art has shown to be a powerful hedge against depressions and market disasters. Collectors who bought art before and during certain periods, such as the second world war and most recently in nations susceptible to currency devaluations, have come out on the other side with more gains than they had anticipated.

A very typical purpose for purchasing art, aside from this, might be for one's own enjoyment. Putting money into the stock market or a successful company demonstrates your proficiency in finance. Although practical, purchasing a pricey automobile, yacht, or house is something you will utilize.

Regardless matter how you want to look at it, purchasing an item of art that costs, say, $1 million is indulgent. This is due to the fact that art is something you want and not something anybody requires.

When you are wealthy, you are more likely to flaunt it. When you invite your friends and colleagues for dinners, parties, or gatherings, nothing announces affluence more effectively than an expensive work of art that helps everyone break the ice and frequently turns into a discussion starter.

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Published: 07 Oct 2022, 10:45 AM IST
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