Stocks, bonds, cryptocurrencies, ETFs, and real estate. These are all common assets that many investors already have in their portfolios. However, as any investor worth their salt will know, diversification is key when it comes to protecting one’s self from a volatile economy.
Stepping away from the stock market and into auction houses may seem like a smart idea. At first glance, the art market seems like it could be a very profitable idea. The art market was estimated to account for $65.1 billion in worldwide sales (2021), which is certainly an impressive figure.
That said, investing in art is unlike any other type of investment you’ll ever make. There are many different factors to consider, and these factors could either make or break your art investments. You’ll want to consider all the variables before making a commitment.
Why Invest in Art?
There are two main reasons why people become art investors: they either love a particular piece of artwork, or they want to make money with these alternative investments.
While it’s certainly possible for art investors to make money, you’ll need to have the risk tolerance to do so. With stocks and similar assets, you have easy access to the secondary market. This simply isn’t true with a piece of art.
When it comes to art, the “beauty is in the eye of the beholder.” Simply put, if no one is willing to buy it, the sale price is irrelevant. If you’re buying art you’ve found at an art fair or from art galleries with no expectation of them appreciating in value, that changes things. You still have the possibility of making money from your investment, but if not, then you have a nice piece of art to enjoy.
The Benefits of Investing in Artwork
Art investments can provide an excellent return on investment, specifically with physical artwork known as blue chip art. These individual pieces are from well-known, established artists. However, their fame doesn’t stop there: even the art pieces themselves are well-known.
Blue chip art is art that’s expected to sell at an increasingly higher value with every sale. Some pieces—such as Leonardo da Vinci’s Salvator Mundi—have graced the auction houses with sales of over $450m. Blue chip art is a smart investment. However, these pieces often sell for millions of dollars.
The Risks of Investing in Art
While blue chip art may be a relatively safe investment, most art pieces are not reliable investments. This is especially true if the piece is from a lesser-known or up-and-coming artist.
Owners may often lend their art investments to art galleries for display. This gives the art pieces more exposure to the public, hopefully increasing interest (and subsequently, value). However, there is no guarantee that this tactic will work, and it’s certainly nowhere near as predictable as the annual return from a publicly-traded investment.
If one doesn’t choose to lend their art pieces out to galleries, then they’ll have to deal with storage and insurance costs. Physical artwork can easily become damaged, but any damage will instantly devalue the investment. Theft is also a concern.
An Alternative Way to Invest in Art
There are ways that they can still invest in blue chip art. One such option is a service called MasterWorks. This unique service allows investors to purchase fractional shares of blue chip artwork from famous artists. While they won’t own the physical artwork themselves, they can still benefit from price appreciation.
Purchasing shares of art is favored by those who want to stray away from traditional investment assets but don’t want to be tasked with maintaining a physical piece of artwork.
Is Investing in Art Worth It?
It certainly can be, but it depends entirely on your specific goals. If you’re hoping to profit from a particular piece of artwork, then your best bet may be to purchase a piece of blue chip art or invest in fractional shares.
On the other hand, if you’re primarily interested in the art from a visual appreciation standpoint, then nearly any piece that you love will do. With luck, its value will increase! If not, then you’ll still have a piece of artwork that you enjoy.
If you’re a high-net-worth investor who has the on-hand capital to purchase blue chip art outright, then we highly recommend connecting with your local art community before taking the next step.
Courtesy Modest Money. By Jeremy Biberdorf. Article available here.