How to Invest in Art – Bankrate.com | Candle Made Easy

The value of art tends not to move in line with the stock market and can therefore serve to diversify an investor’s portfolio. Investing in art can offer a variety of benefits to a portfolio, but comes with inherent risks that you should understand before jumping in.

In the past, art could only be purchased at physical auctions or directly from the artist or owner himself. There are now countless ways to invest. There is the classic way of investing, which involves buying a physical work of art such as a painting or a sculpture. Additionally, there are opportunities to own a fraction of the total work of art, be it in digital or physical form.

Before getting started, investors should decide which path, if any, is best for them. Physical art, of course, takes up space and may require more commitment than digital versions, but it can also yield greater returns if chosen correctly. Art is considered Alternative investmentand investing in these types of assets can often require different methods than investing Stocks and Bind.

How to start investing in art

There are different avenues an investor can take to invest in art, be it physical or digital.

  • Physically: The classic approach is to invest in physical art. This can be done through galleries and auction houses (think Christie’s or Sotheby’s, two traditional auction houses) both in person and online. Here you can find a work of art that you think is a worthwhile investment and buy it directly.
  • Digital/NFT’s: Non-fungible tokens, or NFTs, are a way to digitally invest in an artwork and document ownership over a secure blockchain. Purchasing An NFT allows you to own a digital work of art, but an NFT really can be anything from a work of art to a song or even a written work. Art is not necessarily a painting or image, and NFTs allow investors to own a wide range of digital art assets without ever coming into physical contact with them. They can then be traded and sold on the open market.
  • Marketplace Pages: Sites like Masterworks allow the purchase of fractional shares of art. This is perfect for investors who want to get their feet wet but aren’t ready to commit to buying a whole lot just yet. The company acquires the artwork, securitizes it (so almost anyone can invest), and then sells it when the time is right. Investors can earn a return once the piece is sold. Masterworks also offers a secondary market platform to provide liquidity for buying and selling artworks, similar to how NFTs are bought and sold (minus the blockchain). Investors can also buy and trade shares as they would any other tradable asset.
  • Stocks, ETFs and Mutual Funds: There are no classic shares or ETFs and Investment funds for art, but there are funds geared towards art capital, like that of a company called Yieldstreet. For example, investors can invest in a portfolio of 10-20 artworks through their Art Equity Fund II. This particular focuses on artists who were influenced by art in Harlem, New York. Art stock funds work similarly to regular stock funds in that they have a fund manager and charge a management fee, but investors have to wait until (and if) the pieces are sold to earn a return.

Is art a good investment?

A recent report by Citibank showed that from 1985 to 2018, art market returns roughly matched those of high yield bonds, outperforming both developed and emerging market equities.

In short, art has outperformed other asset classes but has also endured significant periods of volatility. Citi also notes that contemporary art declined a whopping 56.8 percent during the early 1990s recession and about 28.5 percent during the Great Recession of 2008. During the COVID-19 pandemic, the market has remained somewhat more resilient, likely because the market turmoil was brief. lived and a stock market boom followed.

Since art is inherently subjective, whether you consider art a good investment or not really depends on how you look at it. The return on the piece can only be realized after one has sold it and this entirely depends on other people’s views. More traditional investments, like stocks, have teams of analysts at various companies throughout the open market studying the value of a company and assigning a value to that particular asset, meaning a stock’s value is more objective.

Investors then have a range of educational tools at their disposal to help them make their investment decisions. In art, the same level of information is not available. There have been recent developments like the All Art Index, created to track sales of top-ranked artists around the world, but it’s not the same objective process as research-backed analysis for publicly traded stocks.

Risks of investing in art

  • Illiquid: If you are purchasing a physical work of art, it may be difficult or impossible to sell depending on the demand for that product. You may then have money tied up in an asset that cannot be easily dumped.
  • Not publicly traded: Art is an alternative asset that isn’t traded on a public stock exchange, meaning it’s really up to the investor to educate themselves about their investment decisions.
  • Volatile Demand: Art, unlike, say, a utility, can be seen as both a luxury and subjective. While you always need electricity, you might not always need art. Amplify swings in popularity and demand for art can create volatility in an already speculative asset.
  • Lack of expertise: While most investors don’t have specialist knowledge of every stock in their portfolio, there is at least some level of public scrutiny and teams of analysts providing it for them. The art world isn’t the same and until recently has been pretty closed to most investors. Art in particular requires special knowledge. This can expose investors to greater risk that could more easily be taken advantage of.

Is art investing right for you?

As with all investments, it depends on where you are and what your goals are. If you’re an investor just starting out, you don’t have any significant ones emergency fund at hand and not yet Increased your retirement accounts with a regular contribution, then maybe art is a better investment opportunity at a later date.

If you’re an investor who has already secured your long-term retirement and savings goals and is looking for an alternative asset to diversify your portfolio with, getting into art equity funds, or even a fractional interest in art, could be a good option.

bottom line

Outperforming multiple asset classes over the past thirty years, art could be a good addition to an investor’s portfolio, but it comes with several inherent and unique risks. Art in physical form is illiquid and can be incredibly risky if you don’t know what you’re doing.

Art can also be incredibly expensive, and a bad choice could leave you with a bulky piece of art that you can’t unload. Investing in digital art forms is new and offers convenience, but it can also be plagued by the volatility and fickleness that has characterized the art market for decades.

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