The stock market has been incredibly volatile since the coronavirus pandemic. It feels like every single government safety regulation is sending shockwaves through the entire market. Because of this increased volatility, many investors are taking a renewed look at alternative investments. In particular, investors are taking a deeper look at how to invest in art.
Art has come a long way as an alternative asset. For years, investments in art were really reserved for wealthy private individuals. You only did that after you had already invested millions in stocks and real estate. Nowadays it is much easier to invest in art. Let’s take a closer look.
Why do people invest in art?
Art is an alternative good. Most investors primarily use traditional assets such as stocks, bonds, and cash alternatives. Alternative assets, on the other hand, are other objects that can increase in value over time. Some examples of alternative investments are commodities, precious metals, diamonds, watches, vintage cars and works of art. Alternative asset markets tend to be a little less defined than stocks.
Investing in art has undergone a major shift in recent times. This transition is largely due to the rise of NFTs. NFT stands for Non-Fungible Token. These are digital tokens that can represent almost anything. Most commonly, NFTs are used to represent works of art. NFTs have completely changed the world of digital art. This is because NFTs rely on blockchain technology. Blockchain technology makes it nearly impossible to replicate an NFT.
With that in mind, let’s examine what benefits you can expect when you invest in art.
Benefits of Investing
- diversification. Art is a great way to diversify stocks, bonds, and real estate. Additionally. Government regulations and Federal Reserve meetings don’t really affect art prices. This means that rising interest rates will not crash your investment.
- It can offer higher returns than you would expect. Masterworks estimates that since 1995, the annual increase in the value of artworks has been 13.6%. On the other hand, the historical median return for the S&P 500 is about 10%. Obviously, your returns can vary wildly when investing in individual works of art.
- You own a piece of history. When you buy an original Picasso or Van Gogh, you buy a piece of culture. In many ways, this is far more appealing than owning a stock portfolio. Additionally, high-end artwork is actually pretty stable in terms of its price. Even the largest companies in the world could eventually go bankrupt. However, it is hard to imagine that people would suddenly stop considering a famous work of art as valuable.
- Owning artwork is pretty cheap. Works of art are expensive to buy but cheap to own. You will most likely have to pay for shipping and hanging your artwork. After that, there aren’t many other fees. Contrast this to an asset like real estate, where ownership comes with dozens of fees (taxes, insurance, HOA fees, etc.). Even stocks can get expensive, as most financial advisors also charge a fee for managing your portfolio.
- It is usually issued. Nobody frames their Apple stock and hands it off in the hallway. Works of art, on the other hand, should be fun.
disadvantages of the investment
- It’s incredibly expensive. For years, a piece of art cost you at least a few thousand dollars. More expensive pieces could quickly run you into the hundreds of thousands. While this is beginning to change, art investment in general is still a rich person’s game.
- Fine art is very illiquid. Aside from NFTs, one of the most illiquid assets is fine arts. It is usually a very long process to buy and sell an artwork. If you need to raise money quickly, don’t rely on selling an artwork.
- Long time horizon. Apart from NFTs, art investments generally have a very long time horizon. This means that artworks can take years to appreciate in value. In fact, many investors buy works of art with the intention of leaving them to their children.
- All kinds of art investments are quite risky. A traditional work of art may be priced securely. However, you run the risk of it being damaged or stolen. On the other hand, there is not much risk of your NFT being damaged or stolen. However, there is a chance that the project will lose popularity. This could theoretically reduce the value of your NFT to $0.
Types of Art Investments
There are three ways to invest in art. The first is to buy original pieces yourself. This usually requires you to work with a professional who can help you navigate the market. This process requires finding, validating and negotiating an artwork. There are some marketplaces such as B. Singulart, which can simplify this process.
Another way to invest in art is through crowdfunding sites. Two examples of art crowdfunding sites are Masterworks and Yieldstreet. These websites allow you to invest in works of art without actually buying a piece. For example, Masterworks owns a portfolio of artworks. All of their pieces have a history of increasing in value. Masterworks certifies each piece and allows you to buy “shares” in it.
The last way to invest in art is through NFTs. NFTs are still very new and many investors find NFT investing risky. Additionally, most NFT prices are extremely volatile. This can result in extreme wins or losses in a short period of time. If buying an NFT seems risky, you can also invest in stocks that are benefiting from NFT’s popularity.
Art investments for beginners
As with any investment, when investing in art, you should first start with your financial goals. Before proceeding, make sure art investments align with your goals. If you want to diversify your portfolio by owning a unique asset, then art investing is a great idea. If you’re looking for a cheap way to earn a safe return, then art investing probably isn’t for you.
Once you’ve decided to invest in art, the first thing you need to decide is how you want to do it. Here are two questions you can ask yourself to get you started:
- Do you have a favorite artist? If you do, researching their most famous pieces is a good place to start.
- Are you only interested in financial gain? In this case, I would recommend using a crowdfunding platform. This way you don’t have to navigate through the whole sales process. You don’t have to worry about the responsibility for the artwork either.
While still very new, I would also recommend researching NFTs. This is because NFT investing solves two major art ownership problems. First, NFTs are much easier to buy and sell than traditional works of art. Second, NFTs are known to appreciate in value much faster than traditional artworks.
Ultimately, there is no single right answer to investing in art. It depends what you are looking for as an investor!
I hope you have found this guide to investing in art valuable! If you’re interested in learning more, please subscribe below to be notified of new articles as we write them!
A graduate of the University of Miami, Teddy studied marketing and finance and played on the soccer team for four years. He has always had a passion for business and has used his experience from a few personal projects to become one of the top rated business writers on Fiverr.com. When he’s not pounding words on paper, you might find him banging notes on the piano or randomly traveling to a place.