Investing in art can be a great idea if it’s something you really love. But it can be risky, so you need to be well informed.
Art can do more than just beautify a living space. The art market has become one of the hottest new investment crazes in recent years. Painting and sculpture collectors often buy pieces with the aim of adding to their investment portfolio.
But can you really make a profit on art investments? Or is this new asset class just hype?
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How do art investments work?
Like stocks and bonds, art can increase in value. When an emerging artist has a successful career, the monetary value of their works skyrockets. An annual report by Art Basel estimates that global art market sales reached more than $67 billion in 2018.
Art is a long-term investment
Profits from art cannot be made overnight. Experts recommend art investing for patient investors with a time frame of 10 years or more, so think long-term.
Many art investors include paintings in their estate planning as assets to pass on to their descendants.
The art market follows its own rules
A great advantage of art as an asset is that its value does not rise or fall with the stock market. Even if your stocks don’t do well, your art investment can do well – good news for the savvy investor who wants to diversify their portfolio and minimise risk. And ideally, though not always, art will continue to increase in value over time.
Art is risky
Every piece of art is unique, and the art market has ups and downs, just like any other market.
Since it is impossible to determine the true value of a piece of art – much depends on the reputation of the artist and the economy as a whole – you should accept some risk.
How to invest in art
Start by deciding how much money you are willing to spend. It should be an amount you can part with if the artwork loses value. Don’t forget to plan for possible storage and maintenance costs.
Then learn as much as you can about the art world. Visit local galleries and see what they have to offer; chat with the curators, who are usually willing to answer your questions.
If you live in or near a city, you’re likely to be around gallery openings and art fairs where emerging artists exhibit their work.
Browse websites like Artnet and online auction houses like Sotheby’s to get a feel for how the market works.
Once a work or artist has piqued your interest, you can narrow your search to see how much a particular artwork costs. The app Magnus provides up-to-date pricing information for potential investors – take a photo of the artwork and they’ll tell you the details. Your next step is to have the artwork valued by a professional appraiser to determine its quality.
You can either buy a piece of art yourself – often the more expensive option – or buy shares in a piece of art through an online marketplace.
This being the information age, many high-quality artworks are sold online. But before you buy over the internet, make sure you buy from a reputable gallery, dealer or investment firm.
Masterworks
The Masterworks platform is a great option, especially for art beginners, as they do most of the work for you. Masterworks buys paintings and sells shares to investors and keeps you updated on the progress of the investment.
With Masterworks, you don’t actually own or store the artwork. Instead, you and several other investors buy shares in high-quality works that have been checked for authenticity by experts. Masterworks has no specific minimum investment amounts; the minimum amounts vary depending on the specific investment offers available at the time of your investment.
Similar marketplaces include Maecenas (where you can buy shares in paintings) and Saatchi Art (where you can browse and buy directly online).
What you should know before investing in art
It should only be a small part of your portfolio
For most people, art will only be a small part of a well-rounded investment portfolio. You can benefit from it, but it’s highly unlikely that you’ll get a huge payout from art alone.
Think of it like a property investment; extra, not substantial. Don’t rely on an art investment to provide a steady income. And don’t forget that you will have to pay tax on any gain, as the taxman considers art a collectible.
Art is not liquid
It is important to remember that art is a non-liquid or illiquid asset. This means that it is difficult to convert it into cash immediately.
Liquid assets, such as stocks, bonds and savings accounts, are easier to convert into cash. Illiquid assets, such as real estate and art, take much longer to sell, even if they have a large cash value.
Although it is possible to sell your art, most investors do not. An auction house, your best bet for selling, often charges hefty fees. Since art prices fluctuate regularly, there is no guarantee that selling will bring you a profit.
When should you invest in art?
Here are some signs that the rewards might outweigh the risk.
They enjoy art
Most art investors start out as collectors. If you love going to galleries and are already looking for a great piece for your home, turn that appreciation into an asset! But if you don’t like art for its own sake, other investment options are better for you.
You don’t have to be a collector to invest in art. You can limit your investments to one or two pieces. But knowledge of the art world – or working with someone who has that knowledge – is key if you want to pick winners.
Returns would be great, but you don’t rely on them
The best approach to art investing? Consider the aesthetic pleasure first and then the financial benefits.
Rejoice in any gain, but don’t plan your financial future according to those gains. Any money earmarked for retirement should be invested in other assets. In fact, according to a Stanford study, art is unlikely to improve a portfolio. Bottom line: don’t invest in art that you can’t afford to lose.
You are willing to research
That said, art investors can choose pieces with great long-term value. But get in informed, just as you would if you were investing in the stock market.
Start by researching the artist of the work you are considering. Ask the following questions:
Are their pieces included in any museums or famous collections?
Have they won awards or received other recognition for their work?
Emerging artists may be exciting, but their reputation may or may not last. And that will affect the value of their work.
You can afford the upkeep
Art investors have control over their assets, which can be a bonus. But you are responsible for keeping the artwork in pristine condition, which means monitoring factors such as humidity and sunlight.
If you display the artwork, you must ensure that it retains its original quality. If you put it in storage, you will also have to pay for it. If you add insurance costs and the price of a certificate of authenticity, your maintenance bill adds up.
What to look for when buying art
The art world is broad. To narrow your search, choose a genre or time period that interests you. Then find an expert to help you with your search.
We recommend working with an art advisor or investment firm that specialises in art (we’ve listed some options below).
Having someone on your side will help when it comes to determining the fair market value of a piece of art and ensure you get your money’s worth.
Once you have found your focus, you should know what type of artwork you want to buy.
- Original or one-of-a-kind artworks have the highest price, but also the greatest potential for profit.
- Prints or copies are more affordable but less promising in terms of profit. The highest quality print is called a giclée (zhee-klay). It is more similar to the original work than other prints, but also more expensive. Rarer prints are usually more valuable. A print from a small number of limited editions will have more value than a print of which many copies are in circulation.
- Reproductions are mass-produced copies with no limited edition. They are the cheapest option, but they are also worth the least. You are unlikely to make a profit from a reproduction.
In any case, look for quality and good condition. Especially with expensive investments, it is worth spending the extra money for an appraisal.
