Apr 13, 2021

Investing In Art (Process, Returns, Tips)

Until recently, investing in art was an investment avenue reserved for the ultra-wealthy and investors who had strong connections in the art market. 

But today, you can begin investing even with just $5000.

This is due to innovative fintech platforms that are enabling everyday art enthusiasts to easily invest in the art industry and earn annual returns of nearly 15% in the process. 

This article explores what art investing is, the historical returns, five pointers to maximize your returns, and a fresh, new way to get started with it today. 

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This Article Contains:

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What is art investing?

Historical performance of art investments

5 keys to maximize art investing returns

The easiest way to invest in art: Masterworks

What Is Art Investing?

Art investing is the practice of purchasing art in the anticipation that it’ll appreciate in the future. 

It may take many years before the value of an artwork is high-value enough to profit from a resale, and an art investor should be ready to hold the art piece for the long term.

Fortunately, new fintech art investment platforms streamline the process of entering the fine art market while offering investors an easier way to liquidate their investment. 

What type of art should you invest in?

The definition of collectible art has now expanded beyond painting and sculpture, and is constantly evolving. Today, investable art may also include drawings, photography, mixed media, prints, and video

It’s important to note that every piece of art is either an original piece or a replica (a copy). The most expensive and valued artworks tend to be originals that are valued for their rarity. However, their copies can fetch top dollar too. 

Sometimes, an artist may even authorize limited edition prints of their original work. These copies are a good investment for amateur art enthusiasts. 

When it comes to copies, there are roughly two types you can invest in: 

  • Gicleés: the highest quality reproductions, recognized for their museum-quality authenticity. They usually are limited in number and, as a result, more valuable.
  • Reproductions: budget copies that are far more affordable and usually don’t limit the number of copies created.

Historical Performance Of Art Investments

Art collecting has traditionally been seen as a blue-chip, long-term investment. This has led to fine art investing typically being a multi-generational activity, like in the case of the Mayer family of Chicago. 

They bought Buffalo II by contemporary artist Robert Rauschenberg for $16,900 in 1964. This artwork sold for an astounding $88.8 million (with fees) in 2019.

Such appreciation is indicative of a larger trend in the art investment world. 

The Art Market Research website analyzes art auction trends in the global art market. In 2018, they found that people who invested in art at the beginning of the year saw an average return of 10.6% by November. And Wall Street Journal declared the asset class to be one of the top stock market beaters that year. 

The median sale price of dealer-sold artwork was $10,000 in 2019

Moreover, the art world saw a surge of activity during the COVID-19 pandemic. Sotheby’s alone reported sales of $2.5B in 2020. This highlights a growing market of art lovers and enthusiasts who want to own their favorite piece of art. 

5 Keys to Maximize Art Investing Returns

Art is a promising investment strategy for prospective investors. However, without enough information in hand, it can be very risky. 

Here are a few things to keep in mind when investing in art:

1. Do your research 

If you’re a first-time buyer, fine art investing will require thorough research in three areas:

  • The Artwork

If you’re looking to invest in a particularly rare piece of original art like a Picasso or a Warhol, make sure you conduct thorough background checks on its authenticity. The best way to do this is by enlisting the services of a third-party authenticator and evaluator. 

Awards, critical acclaim, and a general buzz around the artwork are also important factors to consider when investing in a piece. 

  • Artist

If it’s contemporary art by a living artist, their previous works, their age (indicating their potential for future masterpieces), and any interesting facts about them have a huge influence on the current and future prices of their work. 

Study how critics and markets have responded to an emerging artist in the past to figure out if their works are investment-worthy.

  • Art dealer

You can buy art from the artist, their agent, a broker, a museum or an art gallery owner, an art fair, or a private art collection. In each case, look up references or reviews to check their reputation and any after-sale service they may offer before buying art from them. 

2. It’s illiquid (with an exception)

Art is an illiquid alternative investment. This means that you can’t buy and sell art on a marketplace as quickly as stocks or bonds. 

You’ll have to look for a ready pool of buyers for every artwork and often approach auction houses or dealers to sell this tangible asset. 

However, some newer platforms and services offer a secondary market for art shares, making liquidation far easier. 

3. Consider overheads and maintenance

Art incurs tons of costs above and beyond the original price tag. It includes transportation costs, auction house or gallery fees, authentication and evaluation fees, insurance, etc.

Moreover, good art requires maintenance, especially if it’s a rare piece. 

You’ll need to store it in the right conditions to protect the works of art from sunlight, moisture, dust, etc. Your home may not always be the best place to store it in that case, and you may have to consider art storage services. 

Take all these factors into account when allocating your art investment budget. 

4. Take help from experts

Art investment cannot be a solo endeavor. 

You’ll need to build your knowledge of the art space and art history by joining a network of art lovers and experts. This will keep you informed on what to buy and when to sell. Additionally, it’s also a great way to find joy in the artwork you’re buying. 

Ultimately, it’s about the right contacts to get notified on auctions and pricing information. It’s best to hire an art advisor or go through an intermediary who can help you navigate the art world in such cases.

5. Think about fractional ownership

Love collectible artwork but don’t have the funds to purchase them outright? 

Fractional ownership is the way to go. 

Here, several retail investors pool funds (via an intermediary) to buy expensive, blue chip art, much like an art fund. 

They’re allotted a share (or a fraction) of the artwork in proportion to their investment. And the intermediary takes care of its sourcing, bidding, transportation, storage, etc. 

This gives investors a diversification opportunity to include shares from several different artworks in their portfolio. 

Finally, all investors can vote to sell the artwork when the time is right and cash in on their fine art investment, valued according to the piece's sale price. It’s the perfect way for regular investors to take advantage of art investments today!

And if you’re looking for a fractional ownership art investment firm, look no further than Masterworks. 

The Easiest Way To Invest In Art: Masterworks

Masterworks is an online investment platform that lets art enthusiasts own a piece of their favorite artwork via Class A stock shares, representing partial or fractional ownership of the artwork. 

Process

Masterworks carefully selects artworks from collectors, advisors, galleries, and dealers based on their average appreciation rate and demand value. The platform then buys the works themselves. 

The artwork is then registered with the SEC, after which $20 shares are created for it. These shares are then sold to investors, each of whom can own up to 10% of any artwork. 

If a private art collector buys the artwork from Masterworks, the proceeds are shared with all investors. They can also trade these shares on Masterworks’ own secondary market.

Until an artwork is sold, Masterworks displays it in a members-only gallery in SoHo, New York, for a minimum of three years. If there are no private art buyers for over seven years, they auction it. 

Minimum investment

You can start investing from $5,000

Fees

You’ll have to pay Masterworks a 1.5% annual fee (taken as equity that dilutes the shares). This covers SEC filing cost, storage, gallery space, transportation, insurance, and audits. 

Masterworks also claims a 20% commission on profits via art sale. 

There could also be additional charges and fees for acquiring, sourcing, securitizing, or selling the artwork.

Potential returns

Masterworks only buys from artists who’ve shown a 9% to 15% appreciation in the past.

Learn The Art Of Investing

Fine art investing is one of the best ways to diversify your investment portfolio and take advantage of an asset class that’s continuously growing. 
If you’re interested in learning about more such alternative investment opportunities, like real estate and commodity investing, take the MoneyMade Investor Quiz. Answer a few questions, and you’ll be presented with a list of investment opportunities tailored to your preferences.

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