There's several ways to invest in art, but here we're going to tell you the four best ways to invest in art. The art market is quite diverse, not only is there several types of art but there's also different classifications of art. Sculptures, paintings, spray painted street art and nowadays NFT's. Different types of art is graded by museums, galleries, auction houses and wealthy private buyers.
Let's first and foremost discuss the negative part about investing in art. Art is illiquid, this means fine art is not easy to resell and you aren't able to do it in a quick manner. But that doesn't mean it's hard to sell fine art by any means, it simply means you aren't able to sell it as fast as say a company stock or bitcoin.
Pablo Picasso's " Dora Maar au chat" is auctioned by Tobias Meyer at Sotheby's New York / Timothy A. Clary/AFP/Getty Images
The big positive of holding any sort of these four art investments is diversification. Investing in art doesn't only give your portfolio diversification but it can also add stability to your portfolio. Because art is not as liquid as other assets, this is part of the reason why art tends to sustain its value.
Art is not bought and sold as frequent as other liquid assets. For more information on navigating the art market, check out our other Guides!
4 Ways to Invest in Art
Now let me tell you the best reason to acquire fine art. If you purchase art from a known artist with a track record of sales and is established in their own right. You're able to enjoy the artwork as it increases in value.
The wealthy are not the only ones who can invest in art. You can diversify your assets by collecting art and buy something to hang up on your empty walls. Your investment will look far better than a stock certificate. Keep in mind when you invest in art, you need to know what/who you're purchasing. We have a Beginners Guide on what type of artist's to look for.
1: Physical Art
This tends to be the most popular way many choose to invest in art. Buying physical art allows you to not only display your investment in your home, but it allows you to appreciate the artwork in itself. Rather than only looking for the return on investment. But the downside of investing in physical art is you need to know what you're doing.
Unlike investing into an art fund where you allocate your money to money managers and expertise in the space. As long as you do your research, this is the best and most profitable method when investing in art. We have a Buying/Investing guide on what you need to look for when you decide to invest in art.
Art Is For Everybody - Shepard Fairey/OBEY
Sold Date: 09/03/2020
Price On Release: $80 USD
Current Price: $1,000 - $1,500 USD
When you purchase artwork, you may decide to sell various pieces later on or perhaps pass them down to your children or other family members. If you decide to sell your earnings may fall below the 7.6% average return if you decide to list. Fine art auction houses are a good place to sell. Keep in mind auction houses typically take between 5% and 25% of the sale price.
Nowadays it's not hard to invest in art, there's online marketplaces such as Saatchi or Artsy. These sites host a large selection of abstract, transitional art, street art and more, which are available for as low as $500. Regular events allow you to meet artists and learn about their world views and inspirations.
Before you buy a piece of art, make sure you have reservations on how to take care of the piece, we have an Art Storage Guide. You must take precautions in order to preserve its value.
2: Art Funds
Mutual funds are more expensive in terms of their starting price. Minimum buy-ins can start at $2,500 and go up to $1 million. A management fee is charged at 1% to 3%. The fund also keeps a portion of the profits. Each member of a group is allowed to own a small piece of the art. There were over 70 art funds in operation at the end of 2015.
Art funds offer more control and a greater return potential than traditional investments. Anthea, an art investment fund, reported that it earned 23.4% in returns between 2013-2014. Its best investment earned a 404.3% return.
The chart above compares the S&P500 and the ArtPrice. The S&P tracks the 500 biggest companies in the world on the stock exchange.
Sotheby's and Christie's who sell art as investments often cite Art Market Research's Art 100 Index as a reason for their starting bids. This index tracks 100 artists from different regions, styles and times, from 23 auction houses all over the globe. It can provide a broad overview of the state of the art market.
Artprice100 Index was launched in 2018. It focuses on blue-chip artists. According to Artprice, the index has grown at an average annual rate 8.9% between 2000 and 2017. The S&P500, however, grew at a lower rate than the index during the same time period.
This method has a major drawback: It doesn't allow you to actually enjoy the artwork. Artemundi Global Fund, a private fund, has found a way to work around this problem by allowing investors take turns displaying the artwork at their homes.
Masterworks allows multiple investors to jointly own one piece of art. This service is open to retail investors with low minimum buy-ins. This is how it works: Masterworks purchases an art piece, registers it with the Securities and Exchange Commission and then sells shares to individual investors at $20+ each. Your overall investment portfolio will determine the minimum buy-in. A person with $1,000,000 in investments would be more likely to buy-in than someone who starts with $1,000.
Part of why Masterworks works well is because they focus on blue-chip art. This is art that is produced by top 100 artists who are reliably financially profitable. Since 2000, blue-chip art has seen an average 8.9% annual return. Each investor gets a share of the loss or profit when Masterworks sells the painting. With a target return of 10%- 25%, the timeline for earning a profit ranges between three to seven years.
Claude Monet painting was purchased 1.3M, shares were raised and bought up on the piece of art. A few years later this Monet sold for 13.2M, all investors who held their shares and waited for the sale to happen gained quite the return on investment.
The painting is yours, but you have very little control over it. To make a profit, you can either wait for Masterworks to sell the painting or sell your shares via the secondary market. The fee structure, like all investments, will reduce your profit margin. Masterworks will retain 20% of the proceeds from artwork sales.
Last but not least, NFTs (or non-fungible tokens) a new form of art, digital art. I'm sure you've heard of them, they've been all over the internet as of late. It's important to keep in mind that an NFT (or non-fungible tokens) is technically a token in itself. It allows you to hold and prove ownership of something digitally. So technically an NFT could be music or really anything online that can be digital. But the term has mostly been correlated with digital art because digital art has been the biggest use-case of non-fungible tokens.
When you invest in art, as mentioned already there's various ways and one should do their due diligence before deciding to invest in any of them. NFT's are a newer and more speculative area in the art world, so one should do even more research.
Above you can see some of the sale prices CryptoPunks are going for nowadays, the most successful NFT's in the world.
The big positive about NFT's is the liquidity factor of it all, it's very easy to purchase and then turn around and sell an NFT. Because everything is done digitally on the blockchain, usually on the Ethereum blockchain. This is something very new to the art market, art was never easy to liquidate from ones portfolio, NFT's changed that.
These digital art pieces can be traceable and verified as physical works of art. An art NFT allows you to own artwork with digital integrity that can't be duplicated. Blockchain allows investors to transact easily and offers transparency, authenticity, and greater liquidity.
The First 5000 Days - Beeple
The digitization of art is also proving to be a boom for emerging artists. Mike Winkelmann (known as Beeple) is a well-known NFT artist. He auctioned a collage called “The First 5000 Days” for a record $69 million. Many traditional artists have entered the NFT space because of the growth in the sector. Art NFTs allow artists to directly sell their work to consumers and give investors access to the pieces on an open market.
For more guides on everything contemporary art, check out our other guides!
Conclusion - How Risky is it to Invest in Art?
At the end of the day every investment you make has some sort of risk, there's no such thing as reward without some sort of risk when it comes to investing. Art is not an exception to this rule.
The true value of artwork is difficult to determine because it partly depends on artist reputation and overall economy. It also depends on if the artist being bought/wanted by private collectors, auction houses, galleries and museums.
Art is also non-liquid, as mentioned earlier. This makes it difficult to quickly turn your investment into cash. Depending on what type of art you own, you may need to have the artwork appraised and find an auction house that is willing to sell the artwork. Other art you can always sell on various marketplaces online.
It is important to research and figure out how much money you can afford before investing in this asset class. This can open up new ways to enjoy your portfolio. Make sure you're using art strategically as an investment diversifier, and it will serve you well in your portfolio.
This is NOT investing/financial advice, we're sharing our opinion respectfully from a speculative point of view.