There was previously a presumption that only a particular type of person possessed the expertise, aptitude, and enthusiasm necessary to successfully invest in works of art. This stereotype restricted entry to the art world for far too long to those of a particular class, degree of education, and socioeconomic standing.
Thankfully, this belief has faded over time, and art investment is becoming a more popular concept. Over time, many hurdles and preconceptions have been dispelled, and industry insiders have been more open to divulging their trade secrets to outsiders.
In the end, investing in art is a chance that is available to everyone, and where you start actually has very little bearing on how much money you make. It has the potential to be an incredible financial opportunity with extensive research, careful preparation, and some familiarity with the art industry. Are you uncertain of where to begin? Discover everything you need to know about investing in art by reading on.
In a Nutshell
- Perform research: It’s crucial to get knowledgeable about the art world, the various artists, their styles, and methods. Look for historical information and patterns that might help you make financial decisions.
- Clear investment objectives: Determine your goals and the reasons for your investment in the arts. Are you seeking a long term increase in value or do you wish to diversify your portfolio? Your investment approach might be guided by having certain goals.
- Seek professional guidance: Take into consideration speaking with an art advisor or other experts who can offer insightful information on the art market.
- Don’t put all your financial eggs in one basket by diversifying your assets. To spread your risk, think about investing in a variety of artistic genres, media, and creators.
- Keep calm: Investing in art can be a long term endeavor. Expecting fast returns is unrealistic, and you should be prepared to hold onto your money for a while.
Why Investing in Art is Profitable?
Recent high profile auction transactions have caused a lot of attention in the fine art market. Shot Sage Blue Marilyn (1964), a painting by renowned artist Andy Warhol, brought a record breaking $195 million at auction in May 2022.
According to the Art Basel and UBS Global Art 2022 annual study, global art sales topped $65.1 billion in 2021. Sales increased by 29% from 2020 to this point, exceeding pre pandemic levels from 2019. Additionally, they discovered that sales volume had returned to Covid 19 levels, rising 17% in 2021 to an anticipated 36.7 million transactions.
Advertisement
Very little Correlation with Traditional Markets | Investing in Art
Risk is always a factor when investing in art. Market risk is the systemic risk that is unavoidable in the stock market and cannot be mitigated by diversification. Anyone want s to start investing in art or in index funds will experience losses during a market downturn, regardless of how many different funds they choose.
However, there is no correlation between art and any market or stock index. Purchasing art functions as a value store that is entirely distinct from regular asset movements. According to a 2022 CitiBank Report, the majority of correlations between art and all other asset classes are marginally positive or near to zero.
Between 1985 and 2021, there was no association between contemporary art and developed equities, but there was one between contemporary art and investment grade. The correlation for Fixed Income was 0.15. In fact, art and real estate, another class of physical assets, showed the strongest link, with a correlation of 0.21.
There is No Price Decline for Investing in Art
Art can and historically has increased in value, but it also has the critical advantage of not depreciating in value. After years of hanging on a wall, art does not lose value like other tangible assets like homes and cars do. A artwork that is 500 years old will, if anything, be worth more now than it did when it was ordered.
According to a 2022 CitiBank Report, all Art Index generated a 28.2% return from January 2020 through June 2021, which is equivalent to broad, publicly traded risk asset classes like developed market equities, emerging market equities, and commodities.
“Art is not a commodity. It’s something special, something rare. It’s not something that you can just buy and sell, like stocks and bonds. It’s something that you have to appreciate and cherish.”
David Rockefeller
Possibility of Inflation Hedge | Investing in Art
Post War & Contemporary art prices had an average yearly real price increase of 23.2% from 1985 to 2020, while inflation was at or above 3.0%. This is based on our internal research. In fact, according to Art Net, sales of fine art tend to rise during periods of high inflation, signaling a larger market and potential for further price increases.
Decorative Value | Investing in Art
When you view the shares in your brokerage account, do you get excited? You probably don’t. Unlike other forms of investment, art is a possession that you can appreciate while keeping it in your collection. Since this is where the majority of an artwork’s worth comes from, buyers should value this.
What are the Risks Associated with Investing in Art?
When considering whether to invest in art or not, there are a few factors to take into account, just like with other investment.
Long term and illiquid asset
Buying art is like buying real estate or classic cars; both are extremely illiquid investments that are difficult to turn into rapid income. Any collection, even highly valuable art, can have trouble finding a buyer. Finding a buyer quickly can be particularly challenging.
A piece of art can only be sold through the correct means. Art investments shouldn’t be expected to generate monthly income or be simple to liquidate; instead, they should be a small component of a wider long term investment strategy.
Fees and Costs
Rarely do works of art that are worth investing in have a low price. Of course, there are fractional shares of artwork and art investment funds that enable an investor to add art to their collection without having to spend a million dollars.
If a potential investor wants to buy the artwork outright, they will have to invest some money in a pricey piece. Handling, storage, and insurance are costs that can be very expensive. Investors in the arts frequently intend to keep their purchases for a very long time in order to allow the value to rise. The investor would be responsible for covering maintenance and repair costs in the interim.
False Claims and the Potential for Devastation
The collections industry is overrun with fake goods, and unless a potential investor is knowledgeable about appraisal, it would be simple to fall victim. It is vital to investigate the purchase you are making before making the investment, just as with any other investment.
There are techniques to help against being conned, such as:
Check the materials, look at the authenticity certificate, and find out what edition it is.
Working with an expert or a third party, such as buying from an auction house or hiring an appraiser, is another technique to help against being duped by a fake. The investor’s pressure to be honest is also relieved when investing in art funds or fractional shares.
Lack of Knowledge
When it comes to investing in art, stocks, bonds, or other conventional assets, there is no scarcity of knowledge. These assets are traded publicly, thus there is a wealth of information available. The same cannot be said for art. There is information, but it is frequently scarce because so many transactions are private sales.
When thinking about investing in art, it can be challenging to identify comparables (comps) in addition to the lack of open access to information. There is no guarantee that the piece of art you own will appraise for the same amount as a comparable piece that appraised for $15,000.
Art, unlike conventional assets, is frequently unique, making it challenging to constantly find an exact equivalent. The condition, originality, rarity, and other factors all play a role in determining an artwork’s value.
Different Art Forms you can Invest In | Investing in Art
Choosing what to purchase is one of the most crucial choices when building an “Investing in Art” portfolio. Art can be divided into subcategories in a similar way to other asset groups. The projected rewards and ease of access for these various sorts of artwork vary.
Older artists
Artwork by Old Masters is what you’ve probably seen in art history lessons and museums. These works, created by some of the most well known painters in the world, are prestigious, well known, and expensive. Old Masters artwork includes works by Masaccio, Michelangelo, and Leonardo da Vinci.
The rarest and most expensive works of art in the world are those created by the old masters. Ultra High Net Worth Clientele frequently acquire these things Worthy institutions like museums or galleries or collectors.
Authentic Art
Blue chip companies are those with a proven track record of sustainability and profitability, and the word “blue chip” is derived from the financial term for blue chip stocks. Blue chip art originates from well known artists with enduring cultural appeal, such as Picasso, Basquiat, or Warhol, and is valued more than the prices of the works of the old masters.
Blue chip art typically sells for more than $10,000 a piece, but this makes it simple to begin investing in the most sought after blue chip art.
With the acquisition of pieces to hold in individual accounts and with the new emerging trend of fractional ownership of modern art, blue chip art makes up a sizeable portion of art investing.
Arts Grants
Art funds can fill the gap if buying a piece of art is out of an investor’s price range or area of expertise. By purchasing shares of an art index, investors can easily purchase the entire art market or a specific area of the market.
Developing Artists
There are many artists on the art market who haven’t yet attracted a following or made it big in the corporate sector. Because they don’t yet have the name recognition, emerging artists frequently make works of the highest caliber for a fraction of the cost of those by established artists.
It helps to have prior knowledge of the art industry and market, thus novices are unlikely to discover the next Andy Warhol. Compared to investing in old masters or blue chip artwork, this type of investment is very speculative.
Advertisement
A simple Guide | Investing in Art
The marketplaces for buying and selling art are both primary and secondary. When you buy a work of art directly from the artist or the gallery, it has just been sold in the primary market. Art moves to the secondary market after it has been sold once.
Public auctions
The most typical secondary market for paintings is an auction house. Typically, art that has been held and is being sold at auction is something that someone has. Auction houses can be found both offline and online. Sotheby’s and Christie’s are the two most well known high end auction houses. A retail investor may get access to less well known works of art through smaller auction houses like Artfinder and Society6.
In auction houses, a buyer’s premium—often as much as 30% of the sale price—is ultimately paid by the buyer. First time customers may be shocked by this sticker price.
Galleries of art
Potential investing in art have the opportunity to view a variety of works in art galleries. Additionally, galleries already have a collection of artwork that, at the very least, the curator believes may be valuable. Many art galleries serve as major markets, showing unique works that have never been sold. Top notch regional galleries could be accessible depending on where you live.
Art fairs An investor might buy directly from the artist at art fairs. There is no assurance that attending these fairs will help you uncover up and coming artists. Beautiful works can be found at local and regional art fairs, and while these artists might not become the next Basquiat, they can nonetheless look nice on your wall and possibly increase in value with time.
Partially owned shares and art funds
Purchasing fractional shares is the simplest way for a newbie to invest in art, especially without a lot of initial funds. With fractional investing, a buyer purchases a portion of a work of art from other buyers.
Investors have the right to a portion of the sale revenues after purchasing shares. Considering that the artwork has previously been sold, this is a secondary market. Similar to an ETF, fractional shares might represent a single work of art or a diverse collection of pieces of art.
The easiest and most cost effective approach for a beginner to get started is using a website to invest in fractional works of art. First off, a lot of the research and analysis of paintings and other works of art has already been completed by specialist teams. Second, because there is no requirement to buy the piece in whole, the price for investors is significantly cheaper.
Wrap Up about Investing in Art
Finally, buying art is a growing trend that is now accessible to all people, regardless of class, level of education, or socioeconomic circumstance. The secret to investing successfully in works of art is to do rigorous study, establish precise financial goals, seek professional counsel, diversify your assets, and be patient.
With major sales and transactions, the world’s art market continues to draw attention. Similar growth and high profile auctions are anticipated for the fine art market in 2023. Global art sales are anticipated to surpass the $65.1 billion, according to the annual Art Basel and UBS Global Art 2023 survey, with a continuous rise in sales and transaction volume. The report also emphasizes the appeal of painters like Andy Warhol, whose creations continue to sell for a lot of money at auction.
Additionally, there is no link between the regular and art markets, making art a desirable inflation hedge. A long term investment with illiquidity and potential dangers including market volatility and authenticity questions, art also has decorative value. To invest in art successfully, you must recognize its special traits and respect it as a possession rather than a mere commodity.
FAQs about “Investing in Art”
Diversifying your financial portfolio, the possibility for value growth through time, and the pleasure of owning and appreciating exquisite works of art are just a few advantages of investing in art.
To begin investing in art, you need first educate yourself about the market for fine art and various artists. Advisory services for art or other professionals are another option. Additionally, it’s critical to establish specific financial objectives and diversify your holdings by purchasing artwork from a variety of artists, mediums, and styles.
Take into account the reputation of the artist, the provenance and quality of the work, as well as previous market trends and data. You ought to also take into account your own likes and tastes.
When investing in art, there is a chance of losing money, just like with any other investment. The art market is susceptible to several outside influences, including shifts in fashion, the state of the economy, and world events. When choosing an investment, it’s crucial to be knowledgeable about these dangers and exercise caution.
It’s crucial to take good care of and store your artwork in order to maintain your investment.
Article sources
At Capital Maniacs, we are committed to providing accurate and reliable information on a wide range of financial topics. In order to achieve this, we rely on the use of primary sources and corroborated secondary sources to support the content of our articles.
Primary sources, such as financial statements and government reports, provide firsthand evidence of financial events and trends. By using primary sources, we are able to directly reference information provided by the organizations and individuals involved in these events.
Secondary sources, such as financial analysis and commentary, interpret and analyze primary sources. While these sources can be useful for providing context and background information, it is important to use corroborated sources in order to ensure the accuracy and reliability of the information we present.
We take pride in properly citing all of our sources, both primary and secondary, in order to give credit to the original authors and to allow our readers to verify the information for themselves. We appreciate your trust in our website and are committed to upholding the highest standards of financial journalism.
- The Art Newspaper – Gold Private Fund for Tech Ventures
- ArtNet – Most Popular Stories
- Sotheby’s Institute of Art – News & Events
- Art Basel – News & Events
- Christie’s Education – Education
