Most investors stick with traditional assets like stocks and bonds, usually because they are used to them. However, adding alternative investments to your portfolio allows for broader diversification, lower volatility, and higher returns. Art is gaining traction as an alternative investment option, and not just among the ultra-wealthy.
Different types of art to invest in
The art world offers investors many options. What’s best for you depends on your goals, risk tolerance, and interests. There are several things to consider.
excellent art
Fine art refers to high-value works created by artists with stable demand and a stable history in the art market. These works of art consistently fetch high prices and increase in value over time, making them a relatively safe investment option for investors and collectors.
“Like stocks, the more quality a piece of art is, the more likely it is that the painting or sculpture will maintain its value or even increase in value,” says director of the renowned contemporary art organization The Baths. said George Lindemann Jr., president of the association. Museum in Miami Beach.
new art
Emerging art is the opposite of good art. It comes from an artist who is in the early stages of their career and is not yet established. Emerging arts offer opportunities for higher returns, but they also come with risks. “Emerging art, for the most part, doesn’t emerge,” Lindemann says. He added that there are a finite number of Picassos, Rembrandts and Warhols, who were also once unknown.
“Of course, as with any tech startup, you can get lucky if you choose artists who go on to become famous,” Lindemann says. “The smartest way to buy emerging art is if you like the work or want to help the artist. Let the future decide if there’s a market for it.”
Limited edition prints and multiple editions
Prints and multi-piece works generally have lower prices than one-of-a-kind works of art, making them a more accessible entry point for investors. Produced in limited quantities, they are usually signed and numbered by the artist. While not as exclusive as original artwork, prints and multiples can be valuable, especially if the edition sells out or the artist’s reputation grows.
5 ways to invest in art
1. Individual works
If you are interested in owning physical art, you can purchase pieces directly through galleries, auction houses, or independent art dealers. Choosing the right investments requires in-depth knowledge of the art market and how works are valued and valued. It can be helpful to become familiar with an artist’s work by researching the artist or period you’re interested in, or by visiting galleries, museums, and auctions.
You can also research an artist’s past market performance and growth potential and focus on finding what resonates with you. “It’s better to buy something you like. Chances are it will maintain its value or increase in value,” says Lindemann.
2. Fractional shares of the work
Platforms like Masterworks give everyday investors access to the market through fractional shares in physical works of art by artists such as Banksy, Basquiat, and Picasso. Masterworks handles the entire process of researching, purchasing, securitizing and storing artworks. The company then holds the works for three to 10 years while looking for a good exit opportunity, sells them directly to the art world’s top collectors, and shares the proceeds, minus commissions, with investors.
3. Art Fund
You won’t find art exchange-traded funds (ETFs) or index funds on traditional investment platforms. But companies like Yieldstreet offer funds that allow you to invest in a diverse body of work by established, mid-career, and up-and-coming artists for as little as $10,000. Investment decisions are based on third-party valuations and analysis from a proprietary database maintained by Athena Art Finance, a YieldStreet subsidiary that has funded more than $400 million worth of art investments.
Featured partners
Featured partners
As per yield
Fee
0% – 2% (depending on investment type)
4. NFTs
Non-fungible tokens (NFTs) are virtual certificates that convey ownership of digital assets created on blockchain networks like Ethereum. Sales and transfers are recorded on the network, creating a verifiable price history and provenance ledger. NFTs have experienced tremendous growth just a few years ago, with top NFTs selling for millions and even tens of millions of dollars. However, the NFT market has declined significantly, and it is unclear if and when the market will recover.
Lindemann says NFTs had a time, but that time has passed. “Perhaps the best NFTs will survive over time, but you never know. If you’ve always wanted a particular NFT but couldn’t afford it, now might be a good time. I don’t know.”
5.Art stock
Another option for investing in art is to buy stock in companies involved in art. However, many art stocks are often illiquid investments that are difficult to buy or sell, as they are either high-risk penny stocks or thinly traded (or both).
Pros and cons of investing in art
Strong Points:
- High profit potential
- Diversification (low correlation with traditional investments)
- Hedging against inflation
- Own a tangible asset that you can enjoy every day in your home or office
Cons:
- may not be profitable
- Art is an illiquid asset
- Storage, maintenance, insurance and other costs
- No standardized evaluation metrics
- Artworks may be fakes
Learn more about investing in art
The role of art investing in your portfolio
As an uncorrelated alternative investment to stocks, bonds, and other traditional assets, art can help diversify your portfolio. Diversification spreads your investments across a variety of assets, so a single adverse event doesn’t wipe out the value of all your assets.
“In today’s volatile markets, where asset classes are increasingly correlated, investors seek diversification to manage risk and protect returns,” said Masterworks SVP of Communications, Content and Partnerships. says Matt Sutherland. He added that in the approximately 30 years since 1995, the rating for contemporary art has exceeded 11.5%. In comparison, the S&P 500 index’s valuation was about 9.6%. Still, art is “underrepresented in most investors’ portfolios because it has rarely been accessible to anyone other than the super-wealthy,” Sutherland says. Platforms like Masterworks have changed this by creating a fully managed passive investment vehicle for contemporary art.
Art also acts as a hedge against inflation. Art is a tangible asset that is less susceptible to fluctuations in financial markets. According to the Masterworks All Art Index, contemporary art outperforms other assets such as the S&P 500 and gold during periods of high inflation, making it one of the best inflation-hedging assets.
When should you invest in art?
Timing the market is difficult, whether you invest in traditional or alternative assets. A better strategy is to consider your financial situation and how long you intend to keep the art.
Investing in physical art makes the most sense if you have a long-term perspective and the funds to purchase, properly store, maintain, insure, and restore the artwork. “Building an art collection can cost tens of millions of dollars just for the art itself, not to mention the regular evaluation, transportation, and storage that comes with managing the physical pieces,” Sutherland says. .
If you’re looking for a short-term investment or want to invest a small amount, art funds or fractional ownership may be a better option. “Masterworks allows investors to enter the art market with less capital, without the hassle or proprietary expertise required, and experience the returns that collectors have enjoyed for years.” says Sutherland.
Alternatives to art investment
If you decide that investing in art isn’t for you, there are other options, including traditional investing and a variety of other options.
traditional investment
Stocks, bonds, and funds form the basis of many investment portfolios. You can buy and sell stocks in a taxable brokerage account or hold investments in a tax-free IRA, such as a Roth IRA account.
alternative assets
Art is just one of many types of alternative assets. To diversify your portfolio, reduce volatility, and pursue higher potential returns than traditional investments, consider other options such as commodities, derivatives, real estate, private equity, and venture capital.
Timestamps: Multiples offer a more accessible way to own your artwork
Lindemann says multiples have many benefits for beginners and experts alike. “Serial sculptures, prints, and other forms of art are good ways to collect; there are often public records of their valuations, and they can fetch better prices than works by up-and-coming artists. ” never appeared. ”
Of course, if it is a multiple, the value may increase. “Imagine owning an Andy Warhol print,” Lindemann says. “Twenty years ago they weren’t very expensive, but they still had the allure of a famous artist. Today, Warhol prints can sell for more than six figures.”
Frequently asked questions (FAQ)
What are the best art stocks to invest in?
You can invest in art stocks, but many of them are risky penny stocks or thinly traded stocks. Still, there are some stocks that should be considered trading volume enough to be liquid investments.
- Adobe (NASDAQ: ADBE). Adobe’s graphic design software products, such as Photoshop and Illustrator, are used to create and edit digital art.
- Etsy (NASDAQ: ETSY). Etsy is a global marketplace that connects a community of buyers and sellers looking for unique and creative products, including handmade and vintage items.
Is art a worthwhile investment?
Art often holds or even appreciates value. “Governments, royalty, non-profits, and ordinary people have always wanted to own art,” Lindemann says. “This demand gives monetary value to works of art.”
The value of an investment in art is determined by the price at which the piece is initially purchased and ultimately sold. Both are affected by the artist’s reputation, the demand for the work, and additional costs such as transaction fees, storage costs, maintenance costs, and insurance costs. The art market has generally risen at a steady rate over time. According to Sotheby’s May Moses Index, the average annual return of the art market as a whole from 1950 to 2021 (71 years) was 8.5%, slightly below the return of the S&P 500.
Of course, the value of art goes beyond monetary. Investing in art for its cultural value or the simple pleasure of owning it can be more valuable than the profit it makes. “Historically, the best art is an encapsulation of what a culture looked like or could look like at a particular moment in time,” Lindemann said.
