As an investor, you may eventually feel ready to expand your portfolio beyond the traditional stocks and bonds that most people invest in. One way to diversify your portfolio is with an alternative investment such as art.
Investing in fine art can help you expand your investment portfolio and earn a profit while investing time and money in something that really interests you. And as technology advances, investing in art becomes increasingly easier and more accessible for the average investor. You don’t need to be ultra wealthy to buy art. There are even ways to buy fractional shares of artwork.
Are you considering investing in art? Find out everything you need to know before investing, what to look for in artwork you invest in and how to ultimately get started.
The Short Version
- The art market is worth billions of dollars. While traditionally it's been an investment for the ultra-wealthy, advances in tech have opened up the market to retail investors.
- There are lots of different types of art you can invest in, but it's important to remember that it's a long-term investment.
- You can buy art at marketplaces and auction houses or through online platforms.
What to Know Before Investing in Art
Before you start investing in fine art, it’s important to understand just what you’re getting yourself into. When you invest in art, you’re buying an asset that you hope will ultimately increase in value. Your investment pays off if you can sell the piece for a profit down the road.
There’s no doubt that there’s money to be made in the world of art collecting. According to The Art Basel and UBS Global Art Market Report, global art and antique sales reached $50.1 billion in 2020. Additionally, online art and antique sales reached record heights, to a total of $12.4 billion.
You may be wondering what this means for you as an investor. After all, fine art has had a notoriously high barrier to entry. Artwork sold by dealers has a median price of $10,000 — and for most investors, that’s simply too steep a minimum investment.
The good news is there’s plenty of room for the average investor to make money. According to art investing platform Masterworks, contemporary art appreciated at a rate of 14% from 1995 to 2020, compared to 9.5% for the S&P 500. And while it’s true that art investing has historically been available primarily to the wealthy, things have changed with technological advancements. Multiple platforms have come onto the marketplace to democratize art investing.
Art as a Long-term Investment
While art can be an excellent addition to your portfolio, there are some caveats to keep in mind. First, art is a long-term investment; you shouldn’t expect to invest in art only to sell your holdings a few years later. In fact, many families pass valuable art down through generations.
While art can have a high return, it’s an alternative investment that brings plenty of risks. It’s often difficult to tell just which pieces of art will give you the best return. Those blue chip pieces of art that have already proven themselves are worth millions of dollars, but it’s impossible to know what the next masterpiece will be.
There are also many different types of art you can invest in, from paintings to photos to sculptures. The sheer number of options can make getting started feel that much more overwhelming.
Ultimately, art can be a good addition to your portfolio, but it shouldn’t be your entire portfolio. Instead, make it just one portion of an overall well-diversified portfolio.
Find out more >>> How to Diversify Your Investment Portfolio
How to Invest in Art
Are you ready to add art to your investment portfolio? The first question to ask yourself before you start investing is how much of your portfolio you want to invest in art.
As mentioned previously, art is an alternative investment and shouldn’t make up your entire portfolio. Instead, it should be just one part of a diversified portfolio. The purpose of diversification is to spread your money out across many different assets, so if one asset performs poorly, it doesn’t dictate your overall return.
For example, if you buy stock in only one company, you risk losing all of your money if that company goes under. For the same reason, you wouldn’t put your entire savings into a single piece of art, or even art overall.
But that still begs the question: How much of your portfolio should you invest in art?
According to the investment management firm Invesco, most advisors recommend putting between 10% and 20% of your portfolio into alternative investments. The amount you choose to invest will depend on your financial goals, time horizon and risk tolerance.
It’s also important to note that the 10%-20% should be your total for alternative investments. If you want to put your money into other alternative investments as well, then you’ll likely want to allocate a smaller portion to art.
Look for Art at Marketplaces or Through Online Platforms
Once you’ve decided how much of your portfolio to allocate to art, you can get started with investing. It’s become easier than ever to shop for art online; marketplaces such as Sotheby’s, Artnet and Artsy make it easy to find art from both emerging and blue chip artists.
Depending on where you live, you may also have access to excellent art nearby. If you live in a large city, you can likely easily find art galleries, art auctions and dealers to help you find the perfect pieces for your collection.
That being said, many investors may find that the traditional world of art investing is a bit out of their budget. In that case, a gallery, dealer or online art market may not help you find art at your price point that will appreciate.
Luckily, companies like Masterworks are making art investing more accessible than ever. With Masterworks, you can buy fractional shares in iconic pieces of artwork, meaning you can own a piece of the greatest works of art without paying the millions of dollars necessary to own them on your own. Read our Masterworks review to find out more.SEE IMPORTANT INFORMATION HERE
What to Look for When Investing in Art
If you’re new to the art world, getting started can be a major hurdle. There are countless types of art to invest in. Even once you know what type of art you want to invest in, the options can feel endless.
To get started, decide whether you want to purchase art pieces directly, or use a platform to gain exposure to art through fractional shares without actually buying pieces yourself. Both options have their pros and cons.
Buying art directly gives you the benefit of owning the art outright, which may be important for someone passionate about art and lets you have a say in how the work is displayed and preserved. But it also has a significantly higher barrier to entry, as well as the maintenance associated with keeping the art in pristine condition. Buying fractional shares of art is more accessible, but doesn’t actually give you the benefit of owning the piece outright.
Once you know how you want to invest, you can decide how much you’re willing to invest and how much risk to take on. Blue chip art generally requires lower risk, since those pieces have already proven themselves. However, there may be less opportunity for growth and there’s a high price point.
Another option is to invest in emerging artists. It’s more affordable to get in and, just like a growth stock, there’s a chance for huge growth. On the other hand, there are more risks with this type of investment.
Think About the Type of Art You Want to Buy
Finally, once you know what type of art to invest in, you can decide if you want to invest in originals, limited edition prints or reproductions. An original is a one-of-a-kind art piece — which are the most expensive, as well as the least accessible to the average investor.
A print is a copy of a piece of art. Some pieces may have a finite number of prints available to ensure their rarity and their value. Finally, a reproduction is a mass-produced copy of a piece which have little profit potential since they’re easy to obtain.
Original artwork certainly presents the greatest opportunity for profit. In some cases, you may be able to buy original art from local and emerging artists. But given the high price points and the fact that they’re only accessible by certain investors — especially in the case of blue chip artists — most art investors will buy prints.
As with any other investment, it’s important to do your research. Familiarize yourself, not only with the piece itself but also with the artist before making an art investment.
What Do NFTs Have to Do with Art?
If you follow investing news, it’s likely you’ve heard the term NFT. However, you may not have understood exactly what it means.
A non-fungible token (NFT) is a one-of-a-kind digital asset that is owned by a single verified owner. Like Bitcoin and other cryptocurrencies, NFTs are on a blockchain network. When you purchase an NFT, a digital certificate of ownership is created to verify that you are the owner.
While some of the NFTs that have hit the market may seem a bit silly, this new form of digital ownership has major implications for the art world.
Today, nearly any form of art can be digitized and sold as an NFT. Work from some of the world’s most prevalent artists is already being sold in this way, and plenty of emerging artists are taking advantage of this trend to sell their work in an innovative way.
Find out more >>> How to Buy and Sell NFTs
Is Buying Art a Smart Investment?
Art investing isn’t a new concept — people have been buying and selling pieces of art for centuries. And as you have more disposable income to invest for the future, you may be wondering whether art is a smart investment for you.
As with anything, art may be a good investment for some people but likely isn’t for everyone. Contemporary art has appreciated at a higher rate than the S&P 500 over the past 25 years, and the market is only growing as it becomes easier to invest in art online and through NFTs.
Despite the potential returns, there are some things to consider before investing in art. First, those who enjoy art investing the most will be those who have a genuine interest in it. There are plenty of alternative investments to choose from, from cryptocurrency to art to real estate. Not every investment is right for every investor. If art is something you’re passionate about, then it might be right for your portfolio. If not, then you may find another investment that’s a better fit.
It’s also important to remember the other characteristics of art investing, such as the research required upfront, the potential maintenance costs and the long time horizon these investments often require. Art is also a highly illiquid investment. Unlike stocks, which you could quickly sell if you needed the money, selling a valuable piece of art could take significantly longer.
If you want to gain exposure to art without actually purchasing art, there are ways to do that. Art investment funds like Masterworks allow art investors to gain some exposure to multiple art pieces without the work required for traditional art investing.
Ultimately, only you can decide if art is a good investment for you based on your interest, investing goals, risk tolerance and more.