Investing in the art world can seem daunting. They have so many different options and opinions that it’s hard to know where to start. However, investing in art can be timeless, and when you invest in a quality piece of art yourself, it can be a fantastic store of value.
But the question is, if you are making an alternative investment like art, where should your money go? In this article, Benzinga walks you through everything you need to know about art investing and the best art investments right now.
Is art a wise investment?
If there’s a cliché about art investing, it’s that it’s mostly about the elderly rich people. However, this is not necessarily the case. Although the cost of investing in art can be high, different ways of investing in art can make money from the investment.
You have to be aware that art is usually a long-term investment. The value of art can rise sharply or remain stable in prosperous times, but it can also fall sharply in value in recessionary times.
As with investing in any other asset, you must do thorough research before making any investment decision. Again, as with investing in other markets, you are not guaranteed a profit, but if you do the necessary due diligence you will be able to make good art investment decisions and maybe find a gem or two.
Gasoline gas best platforms for art investment
Masterworks is an example of a mutual fund that allows investors to purchase shares in famous works of art through its crowdfunding platform. The artwork will be kept in a secure environment while Masterworks searches for a buyer to sell it for a profit. As a result, Masterworks offers a more accessible way to enter the world of art investing.
If you’re not sure which art funds to keep an eye on, check out a list of the best art funds available below.
Masterworks is an investment platform that allows retail investors to buy shares in some of the most coveted works of art on the market. Investors can buy shares in current art offerings as well as trade shares on the platform’s secondary market. Artworks on the Masterworks platform have appreciated in value at an average of 14% annually. Masterworks allows investors to buy shares in legitimate blue chip artworks. However, they charge an annual fee of 1.5% along with 20% of profits. There is no account minimum, but minimum investments may vary.
Diverse range of alternative assets
YieldStreet is an alternative investment platform that allows retail investors to gain exposure to a variety of alternative investment funds. They currently offer two art investment options. One such fund is the YieldStreet Prism Fund, which holds multiple types of assets such as real estate and art loans. The minimum investment for the Prism Fund is just $500 and has an 8% annual return.
The second option is the platform’s new Art Equity Fund, which currently has a portfolio of 8 post-war and contemporary paintings. The fund has a minimum investment of $10,000 with target returns of 15% to 18% over the 5 year holding period.
The benefits of art investment
Of course, any investment is made based on its potential value over time or the return it will yield. Well, unless you invest in a business that deals with art, the art itself isn’t going to make a profit every quarter. However, as we mentioned in the Citibank report, investing in works of art can generate similar returns to the bond market. So if you make the right investment decision, art can be a safe investment that pays off in the long run.
Another advantage is that it is not correlated with the stock market. The stock market can be very volatile at times, but these fluctuations will not impact the art world. So when stocks are having a bad day or are in a bear market, your art can still appreciate in value, or at least hold its current value.
Of course, as mentioned, art is viewed by many as a long-term investment and can create value over a long period of time. However, some pieces may increase in price. So if you find a play that is growing in popularity, you could potentially make a sizeable profit in a short amount of time.
Who shouldn’t invest in art?
As already mentioned, art is usually a long-term investment. So investing in art is not for someone looking to make a quick buck or liquidate the investment quickly. According to a 2019 Citibank report, returns on art investments are similar to bonds, with an average return of 5.3% per year between 1985 and 2018. So if you’re looking for a cryptocurrency-like appreciation, invest in it art it’s not for you.
Art is a tangible good. So unless you have an interest in maintaining and displaying the artwork, it may be best not to invest in a piece. Most art investors not only buy the work because of the potential monetary value, but they also buy art because of their fondness for it and the desire to display it in their homes. As this is a long-term investment, it is better to buy a piece that you can display at home and more importantly take care of so that it retains its value before selling it.
Finally, if you don’t have time to educate yourself about art and have no interest in the subject, it’s probably best to leave it alone. As with any other investment, you need to know and understand the market before you put your hard-earned money into it. You wouldn’t buy a stock without first doing some research into why you think it will appreciate in value, and that’s the way it should be with an investment in art.
Possible disadvantages of art investments
Art is a non-liquid asset, which is a disadvantage compared to other forms of investment. Unlike stocks, you can’t just open a laptop and immediately invest in art. Buying and selling art can take time and patience. You must have time to plan the investment if you want to be profitable.
One of the main disadvantages of investing in art is the barriers to entry. These include the cost of financing the purchase and the lack of knowledge for beginners. Investing in art can be a costly process and will not be in everyone’s budget. In the meantime, it is important to know the market you are investing in. Artwork is not the same as stocks, so familiarize yourself with the market before entering it.
Maintenance is another disadvantage of art investments. While some people prefer to have the physical asset in their possession, for others it can be difficult to store, display, and care for the piece. The work needs care to maintain its value and you may also want to insure it. All of these considerations can put potential investors off.
Other ways to invest in art
Art mutual funds are similar to all other mutual funds in that the fund managers buy and sell assets, in this case works of art, with the intention of making a profit. Participation in an art fund allows investors to own fractions of valuable works of art.
Another fund is Fine Art Fund Group, which claims to have an average annualized internal rate of return (IRR) of 20.2% on all $3.3 billion worth of transactions and artwork. The company focuses on western art from 1500 to the present with an emphasis on impressionism, surrealism, modern and contemporary art and jewelry.
Unfortunately, no art exchange traded funds (ETF) are actively traded at this time, but that is due to the lack of liquidity in the art market.
The Artprice100 Index was launched in 2018 with the aim of monitoring the value of the art market. The Index tracks the 100 best performing artists at auction over the last 5 years to give a sense of how the art market is performing. Therefore, invest in the 100 artists whose auction results are consistent and have generated the highest sales over the past 5 years.
The value of the index evolves depending on the individual performance of each artist in the portfolio.
Art Market Research’s All Art Index is a 24-month weighted moving average of sales across 130 auction houses worldwide. Public companies like Sotheby’s (NYSE: BID) often look to the All Art Index to assess the market.
One problem with art indexes is that they don’t take into account the other costs of investing in art.
Buy in galleries or auctions
Buying from galleries or auctions is a great way to invest in art. However, a lack of knowledge or understanding of the market and how it works will lead to bad decisions when investing in this way.
If you don’t have the knowledge or time to research the market, it’s best to trust experts in the field and invest in a fund. For example, when you buy a piece from a gallery, you usually pay a significant premium, but it also promotes the artist.
Alternatively, visiting galleries and attending auctions can be a great way to learn about the market, which will eventually lead you to make better investment decisions.
Art is not like other investments
The art market is unlike any other. Of course, when there is a major economic crisis, it will be affected, but it will not remain consistent with the stock market or highly correlated with any other market.
When you decide to invest in art or an art fund, research and experience are key. Take the time to learn online, visit galleries and attend auctions. Learn as much as possible first.
Investing in art involves difficulties and risks. The most important thing is to have a passion for the market and the art itself. So if you’re investing in a work of art that will eventually appreciate in value, that’s an added bonus.
frequently asked Questions
Is art a good investment in 2021?
If you are looking to diversify your portfolio and have a passion for art, then this can be an excellent investment choice. When chosen wisely, a work of art can steadily increase in value over time and be a great store of wealth.
How do you invest in works of art?
You can invest in art through funds such as Masterworks and others, by owning a portion of individual pieces, or by buying pieces from galleries and auctions. However, buying individual pieces takes some time and effort to ensure you are making the right art investment decision.