Art can be so much more than a beautiful piece on the wall. In recent years, the art market has become one of the hottest investment crazes. Collectors of paintings and sculptures repeatedly buy pieces to add to their investment portfolio.
But will fine art as an investment really earn you a profit? Or is this asset class just a big hype?
As long as you have an eye for art and are risk-tolerant, art investing can be a great way to diversify your portfolio. If you have a sincere interest in art, there are many possibilities how you can get involved in the game. From investing high quality art reproductions to purchasing blue-chip originals, there is a broad array of options for you to discover. You will not only diversify your conventional assets, but simultaneously own a great piece that you can display on your walls. However, discovering the best investment art comes with numerous challenges, which you need to be aware of before you dive in.
Must-know facts before investing in art
Just like stocks and bonds, pictures and sculptures can increase in value over time. When you buy a piece of art, you have the anticipation that the demand for that piece will be increasing. In this case, the value of your artwork will grow, and you would be able to sell it with a decent return.
Finding the right piece of investment art is challenging though, since you most likely won’t find the next great artist before they have gained respectable stardom, selling their pieces for high prices at galleries and auction houses. Furthermore, it is the departed who achieve much higher rates than living generations in general. You must be extremely fortunate to pick an inexpensive artwork by a painter whose career is going to be prosperous with the worth of their pictures rising steeply.
Just like the stock market and any other market, the market for artworks can fluctuate decisively. What makes the art market different though is that every piece of investment art, every picture or sculpture, has its inherent value, which makes it impossible to determine one single ‘true’ value of a work. The most significant factors in outlining the artwork’s worth will be the overall circumstances of the economy on the one hand and the artist’s status on the art market and within the art scene on the other hand. These are the factors that you must know of when you decide to acquire a piece of art.
An artwork, by nature, is a tangible asset. This means that as soon as you possess your precious piece of investment art, it will be necessary to take good care of it, since preservation is central when it comes to maintaining the value of your art. There are two general methods of art maintenance: You can buy a good quality frame, display it somewhere in your home away from sunlight, and make sure to provide it with an appropriate room temperature and humidity conditions. Or you might decide to have the piece of art stored professionally for a fee, where it will be kept at ideal climate-controlled properties. Moreover, there are a several additional charges that you must be aware of. These comprise of fees for appraisal and authentication, transportation costs, sales tax, and insurance.
Steps of how to invest in art
From the beginning, you need to have a clear concept of how much you can and want to spend on a piece of art. Also add in the cost for insurance, maintenance, and storage. Approach your purchase with risk-tolerance and only use an amount of money that you could afford to lose in case your painting does not appreciate as anticipated.
Do comprehensive research about the categories of paintings and sculptures you are interested in by browsing platforms like Artnet and other online auction houses. You need to get a feeling for how the art world is operating. Once you are charmed by an artist’s work, specify your studies and get a sense of how much it will cost you. You might want to employ tools like the Magnus app, which offers art investor pricing specifics. Just photograph the piece of art you are interested in and you will get the corresponding pricing information within seconds.
Different options are available, according to how risk-tolerant you are and how much money you want to spend:
- Purchasing a unique artwork by a living artist at a gallery, art fair, or at an auction. This is a costly and the diciest choice; both ends of the scale, and everything in between, is possible: You might have picked a piece of art that will steeply appreciate over the years, so that it is worth much more than when you first bought it; on the backside, you could have trouble selling it when the career of the artist didn’t develop as anticipated.
- Purchasing “blue-chip art” – a unique work of an artist, who has been established in the artworld and whose place in the auction market has been stable over the course of the years. Paradigms of some of the most outstanding blue-chip artists are Gustav Klimt, Pablo Picasso, and Jackson Pollock. Costs for blue-chip artwork will be even higher, but there are much less risks to tolerate since it will almost certainly be holding its worth steadily.
- Purchasing a high-quality reproduction of an artwork. If you don’t want to take the risk of buying original artwork, you can opt for purchasing a print of the drawing or painting. Naturally, a limited-edition reproduction will cost much less than the original, but it will still hold a good value. You should be mindful though that prints generally do not appreciate just like a unique piece of art.
- Opting for an art fund investment. In case you want the safety of investing in blue-chip art but cannot spend that much, or you want to avoid the hassle of maintenance for an expensive painting, buying into an art fund is the ideal choice. The nature of these art funds is comparable to other investment funds: it allows you to own a piece partially. Every piece of art that is part of an art fund is securitized, making the market for artwork shares more ‘liquid’: It is much simpler to buy and sell shares of the respective artwork than doing the same with a picture or a sculpture itself.
Is art investment the right strategy for you?
As we have seen, investing in art does not come without risks and many aspects need to be taken into account before starting off. Yet, art investments can be a good choice for you if you have a true appetite for art and enjoy careful research into the art market. If you love visiting galleries and museums, or if you are looking for a good fit for decorating your walls anyway, then turning this appreciation into an art investment should not be too hard. Conversely, if you don’t value art itself, then other investment options will be more suitable for you.
When investing in art, you need to be highly risk tolerant. This implies that, of course, any returns from your investments are appreciated, but you should not build your future on receiving such earnings. Don’t buy into art if losing your investment would put you in a difficult position.
What is more, you should already have a portfolio of other investments before focusing on the art market. With such a foundation investing in art can be a good way of diversifying your assets, specifically since the art market does not rise or fall in coherence with the stock market.
And finally, if you opt for physically owning a picture or a sculpture, you should be ready to hold on to it for a few years. Don’t anticipate liquidating your art holdings too quickly. This means that you must be able to cover the expenses for insurance and as needed. Even if your artwork has a great worth, being an illiquid asset, it will take much more time to sell compared to liquid assets such as stocks and bonds.
Final thoughts on art investing
As an art fanatic and with the readiness to take some risks, a knowledgeable investor can find art investment very gratifying. Even if it is only a small portion of your total portfolio, investing in art can match other investments effectively. Buying pieces of art that you appreciate might not only money-wise be rewarding but will further be pleasing when you display them on your walls.