Stocks and bonds are generally the first assets that come to mind when people think about investing. However, the stock market isn’t the only way to make your money grow.
Alternative investments like fine art are often used as a means of portfolio diversification.
Classics in the art world, like Monets and Picassos, can sell for millions of dollars. Pieces from more recent artists like Andy Warhol and Jean-Michael Basquiat can sell for tens or even hundreds of thousands of dollars.
Art has an impressive growth history. According to CNBC, price appreciation in art has outpaced the S&P 500 over the past 25 years with average annual returns of around 14%, making it a compelling investment opportunity. But how do you get started?
You own shares of Apple, Amazon, Tesla. Why not Banksy or Andy Warhol? Their works’ value doesn’t rise and fall with the stock market. And they’re a lot cooler than Jeff Bezos.
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How to Invest in Art – 6 Common Venues
Art is an interesting asset class because it’s represented by far more than a document that says you own a percentage of a company or you’re owed a specific fixed income. Art is an asset that can move its buyer like nothing else.
However, investing in works of art requires buying art pieces that can appreciate in value. You’ll find some of the most common venues for acquiring fine art below:
1. Galleries & Museums
Art galleries and museums are likely the first places that come to mind when you think of where you need to go to see art, and a good place to start looking for pieces to buy.
Most galleries sell the art they display on their walls and pedestals, giving you the opportunity to immediately snap up works you find interesting. In fact, most art galleries are built around the business of selling the pieces they display.
Museums, on the other hand, are a completely different business but they can serve the same purpose for art investors.
Many museums are not in the business of selling the works they display. However, some more popular museums receive a substantial inflow of new works. Selling some pieces from previously displayed collections frees up space and helps financially support these institutions, most of which are nonprofit organizations.
If you’re interested in supporting your local museums while making investments in fine art, call the museums in your area and ask if they sell art from previous displays. You’ll likely need to make several calls and climb up the food chain a bit to get an understanding of the pieces that are available, but the effort may be well worth it.
Moreover, some museums rent space to local artists to display their works. The art visitors can view in these displays is generally for sale by the artists.
2. Art Auction Houses
Art auctions regularly take place at auction houses across the country and around the world. Two of the best-known art auction houses are Sotheby’s and Christie’s, but if you can’t make it to those, do a search for art auctions in your city. You may have to expand your search to some of the larger cities near you if you live in a rural area.
As with any other auction, art auctions are fast-paced events where the best pieces go to the highest bidders.
In some cases, especially when the art for sale is in the five-figure price range and above, you’ll have the option to see what will be up for auction at the next event. This gives buyers a little time to do the necessary research and create a plan for acquiring pieces at prices they believe are fair.
When you buy art at an auction, both the owner of the art and the auction house need to make money. You’ll pay a buyer’s premium that ranges from 10% to 30% for the services provided by the auction house in most cases. If you bid $10,000 on a piece of art, you may actually be bidding somewhere between $11,000 and $13,000, so, make sure to look into the fees you’ll be charged when determining your budget.
3. Art Fairs & Festivals
There’s an artist around every corner and art fairs have a habit of bringing them forward. Local, state, regional, and national art fairs and festivals feature different types of art from a range of artists.
You’ll find local artists who may have an undiscovered talent as well as works from mainstream artists sold by collectors, investors, and enthusiasts.
Art fairs and festivals make investing in art more fun too. They often feature live bands, concessions, and other attractions that make them a perfect venue for parents who want to introduce their children to the world of art.
4. Art Dealers
Art dealers are just like real estate agents, insurance agents, and investment advisors. Art dealers are in the business of matching you with the perfect piece of art instead of finding you the right home, insurance plans, or investment portfolio.
As with any other profession, some art dealers are better than others, and some charge higher fees that could cut into your investment’s bottom line. You may have to pay a premium to employ the best dealers if you want the highest quality art pieces.
Art dealers generally charge a commission ranging from 30% to 60% in the primary market. Commissions generally start at 5% on pieces of $1 million and can be as high as 20% on pieces valued at under $100,000.
5. Fractional Shares
Fine art tends to be an expensive asset. The high cost of entry acts as a barrier for beginner investors. After all, most beginners don’t have tens or hundreds of thousands of dollars sitting around that they can use to invest in a single painting or sculpture.
Some companies, such as MasterWorks and YieldStreet, created a solution. These companies buy and sell art, then split ownership into fractions and sell shares to investors.
With fractional shares of art, you’ll be able to invest in pieces worth hundreds of thousands or even millions of dollars with investments as low as $500.
Here are a few things you should know about the two leaders in the art fractional shares industry:
- Masterworks. Masterworks is the best option for beginner investors. The minimum investment to get started is $500 and shares are priced as low as $20 each. The platform features works by Jean-Michael Basquiat, Kaws, and Banksy, among a long list of other artists. The site also has a secondary market, making it possible to sell your shares. Read our Masterworks review.
- Yieldstreet. Yieldstreet is best for investors with at least $10,000 to invest in art, but who want access to growth in works with higher price tags. Although the company does have some short-term notes with $500 minimum investments, access to the best works costs $10,000 or more in some cases. The company creates funds that own works from multiple artists and sells shares to investors.
Non-fungible tokens (NFTs) are a new, rising star in the world of art. These digital tokens are smart contracts that live on the blockchain, representing verifiable, decentralized ownership of art.
Major artists like Banksy have minted digital art collections featuring thousands of pieces, and some collections have sold for tens of millions of dollars. However, NFTs aren’t just art, they’re often art with utility, offering owners exclusive access to events and rights to reprint and profit from the resale of art.
If you want to buy NFTs, you’ll have to familiarize yourself with cryptocurrency, the decentralized economy most NFT platforms run on. Once you have a funded cryptocurrency wallet, join an NFT exchange and you’ll be ready to buy digital art. Some of the most popular exchanges are OpenSea, Rarible, and SuperRare.
Buying Art as an Investment: 9 Tips for Beginners
The most successful art investors know what to look for in pieces, when to buy them, and how to do their research. You’ll find a few tips to help ensure your success below.
1. Look for Emerging Artists
Whether you’re investing in stocks or art, there’s value to emerging assets. In the art world, emerging artists are just beginning to be discovered, and if they continue on their path, they have the potential to become one of the greats. This makes artwork from emerging players a potential good investment.
Do some digging and try to find artists that are just beginning to break onto the scene. These artists are just beginning to appear in major galleries. You can also find them by reading art reviews.
2. Focus on One Genre or Time Period
When you get started investing in any industry, it’s important to focus on one area of that industry and become a pro before moving forward. The same is true for investing in art. There are several different genres and time periods of artwork, each with its own subtle factors that could mean the difference between growth and loss for investors.
Whether you’re interested in contemporary art, expressionism, surrealism, or art from the Renaissance, make sure you focus your efforts on one specific type of art and try to learn everything you can about that genre and the time period in which it was developed.
3. Do Your Research
Research forms the foundation of any wise investment decision, whether in stocks, bonds, commodities, or alternative investments like art.
The untrained eye will have a hard time picking pieces that have the most potential for growth. What a young beginner may view as a masterpiece may be nothing more than a scribbling on canvas to an expert.
Do your research in order to learn what you need to be looking for.
Once you find the types of pieces you’re looking for, do a search for them on ArtPrice.com and other art-related websites to determine a fair price you should pay and information about the piece you’re interested in.
4. Keep Up-to-Date on the Art Market
The art market changes with the tides. New styles emerge, new artists emerge, and famed artists die, all of which affects the prices you’ll pay for art. Staying up to date on what’s happening in the art market will give you an upper hand when investing in the space.
5. Get an Appraisal
No matter how much research you do, it’s hard to determine what a piece of art might actually be worth. Enlisting the help of an expert known as an art appraiser is one of the best ways to determine how much you should spend, especially on higher-cost pieces of art.
An appraiser can tell if the piece is an original work or a copy or counterfeit, and they can tell you a fair market price.
Once you have the appraisal, you’ll have a better understanding of whether the piece is worth the price tag. Moreover, you may be able to negotiate the price of works you’re interested in using your appraisal as ammunition.
6. Know Your Budget & Stick to It
The price of fine art varies wildly. New and emerging artists might charge a few hundred or a few thousand dollars for a piece of their collections, while the more prized pieces in the art world may sell for hundreds of millions of dollars.
With such a wide range, it’s easy to spend more than you should as you tap into the market.
A wise investor considers art as a means of diversification and allocates a specific amount of their portfolio to this asset class.
For example, if you have a $20,000 investment portfolio and want to allocate 15% of your portfolio to art, you have a budget of $3,000. Sticking to this budget will keep your asset allocation in line with your goals.
7. Maintain the Piece
When you buy a piece of art, you don’t want to throw it in the attic and wait for it to be worth more money. It should be maintained like any other asset of value.
Art should always be stored in a climate-controlled environment, and more delicate, older pieces may have substantial maintenance requirements related to humidity, light, and dust exposure.
If you fail to keep your art investments in quality conditions, the value of your assets could fall substantially.
8. Be Patient
Art is rarely a short-term investment vehicle. In most cases, art collectors hold their investments for long periods of time. Investors often wait three to 10 years or longer before selling.
When investing in art, you’ll have to be patient, and you should never invest money that you’ll need to have access to quickly in the future.
9. Know When to Resell
Selling too soon or too late can shed hundreds or thousands of dollars off your ticket price. In the case of million-dollar works, tens or even hundreds of thousands could be lost by selling at the wrong time. One of the benefits of keeping in touch with the art market is knowing the best times to buy and sell the types of pieces you’re interested in.
The resale of art in your collection should be carefully calculated based on market conditions and art community trends.
Pros & Cons of Investing In Art
Investing in art comes with its own list of pros and cons, as is the case with any other investment vehicle. The most important advantages and drawbacks to consider include:
Art investors love what they do for several reasons. Some of the most significant include:
- Returns. Art has the potential to outpace stocks. Over the past 25 years, art has generated returns of around 14% per year, ahead of the 10% average annual returns of the stock market.
- Add Character to Your Home. While you’re waiting for your art to grow in value, you can display it in your home, adding a bit of character to your living spaces.
- History Lessons. Art is one of the best tools for the preservation of history. As you dive deeper into the art industry, you’ll learn more about today’s community of artists and the communities that lived before us.
There are some drawbacks to investing in fine art as well. Some of the most important to consider include:
- Lack of Liquidity. Art is an illiquid, long-term investment. Even when the time seems right to sell, it will likely take some time and effort to find a buyer on the secondary market who’s willing to pay what your piece is worth.
- High Cost of Entry. The art industry has a major barrier to entry. Blue-chip artworks often close auctions with million-dollar sale prices. For many investors, even a $10,000 piece would be hard to access. Unless you want to buy fractional shares of art, you’ll likely have to shell out a decent chunk of change for valuable pieces.
Art is a great way to create diversification in your investment portfolio. However, as with any other investment, your level of success will be highly dependent on your willingness to research and understand the market as a whole and the pieces you’re investing in.
Beginner investors should strongly consider liquidity before diving into art. Never invest more than you can afford to lose access to for at least a decade. It may take that long for your particular piece to grow in value and for you to find a buyer willing to pay a fair price.