Search current offerings based on your criteria with Benzinga's New Alternative Investments Screener.
Investing in the art world can seem daunting. You have so many different options and opinions that it’s hard to know where to start. However, investing in art can be timeless, and if you invest in a high-quality piece of artwork itself, it can be a fantastic store of value.
But, the question is, where should your money go when you make an alternative investment like art? In this article, Benzinga will take you through everything you need to know about art investments and the best art investments right now.
Is Art a Wise Investment?
If there is 1 stereotype about art investments, it’s that it mainly involves older rich people. However, that is not necessarily the case. Even though the costs of investing in art can be high, various ways of investing in art can make money from the investment.
One thing to be aware of is that art is generally a long-term investment. The value of art can make significant gains during prosperous periods or remain stable, but its value can also plummet in recessionary periods.
Like investing in other assets, you must conduct thorough research before making an investment choice. Again, like investing in other markets, you are not assured a profit, but if you complete the necessary due diligence, you will be able to make good art investment choices and, maybe, find a gem or 2.
Benzinga’s Best Art Investment Platforms
Masterworks is an example of an investment fund that enables investors to own shares of famous works of art through its crowdfunding platform. The artwork is held in a secure environment while Masterworks searches for a buyer to sell it at a profit. As a result, Masterworks provides a more accessible way to enter the art investing world.
If you are unsure which art funds to watch, take a look below for a list of the best art funds available.
Masterworks is an investment platform that allows individual investors to buy shares of some of the most sought-after artwork on the market. Investors can buy shares in current art offerings as well as trade shares on the platform's secondary market. Artwork on the Masterworks platform has appreciated at an average rate of 14% annually. Masterworks allows investors to buy shares in legitimate blue-chip artwork. However, they charge an annual fee of 1.5% along with 20% of the profits. There is no account minimum but minimum investments can vary.
YieldStreet is an alternative investment platform that allows individual investors to participate in a variety of alternative investment funds. They currently offers two art investment options. One such fund is the YieldStreet Prism Fund, which holds multiple types of assets such as real estate and art loans. The minimum investment for the Prism Fund is only $500 and has an annual distribution rate of 8%.
The second option is the platform's new Art Equity Fund, which currently has a portfolio of 8 Post War and Contemporary Paintings. The fund has a minimum investment of $10,000 with target returns of 15% to 18% over the 5 year holding period.
The Benefits of art Investment
Of course, any investment is made because of its potential value over a period of time or the returns it will bring in. Now, unless you are investing in a company involved in art, the art itself isn’t going to bring in a profit every quarter. However, as we mentioned previously from the Citibank report, investing in artwork can provide returns similar to the bond market. So if you make the right investment choice, art can be a safe investment, providing a return over time.
Another benefit is that it is not correlated to the stock market. The stock market can sometimes be highly volatile, but these fluctuations won’t impact the art world. So if stocks have a bad day or are in a bear market, your art can still gain in value or at least hold its current value.
Of course, as mentioned, art is seen as a long-term investment by many and can build value over a long period. However, some pieces can surge in price. Therefore, if you can find a piece that is blowing up in popularity, you may be able to gain a considerable profit in a short time.
Who Should not Invest in art?
As mentioned, art is generally a long-term investment. So, investing in art is not for someone looking to make a fast buck or liquidate the investment quickly. According to a Citibank report from 2019, returns for art investments are similar to that of bonds, averaging a return of 5.3% per year between 1985 and 2018. So, if you are looking for surges in value similar to cryptocurrency, then investing in art is not for you.
Art is a tangible asset, so if you have no interest in maintaining and displaying the artwork, it may be best to avoid investing in a piece. Most art investors not only buy the work because of the potential monetary value, but they also purchase art due to their fondness for it and desire to display it in their homes. As it is a long-term investment, it is better to buy a piece you can display at home and, more importantly, maintain, so that it holds its value before you can sell it.
Finally, if you don’t have the time to learn about art and have no interest in the topic, it is probably best left alone. Like any other investment, you must know and understand the market before putting your hard-earned money into it. You wouldn’t purchase a stock without researching why you believe it will gain value first, and it should be the same when investing in art.
Potential Drawbacks of art Investments
Art is a non-liquid asset, which is a drawback when compared to other investment types. Unlike stocks, you can’t just open up a laptop and invest in art instantly. Buying and selling art can take time and patience. You need to have time to plan the investment if you want to be profitable.
One of the main drawbacks to investing in art is the barriers to entry. These include the cost of financing the purchase and the lack of knowledge for beginners. Investing in art can be a costly process, and it won’t be in everyone’s budget. Meanwhile, it is essential to know the market you are investing in. Art pieces are not the same as stock shares, so make sure to familiarize yourself with the market before you enter it.
Maintenance is another drawback of art investing. While some people may prefer having the physical asset in their possession, for others, storing, displaying and taking care of the piece can be challenging. The work needs to be maintained to preserve its value, and you may also want to insure it. All these considerations can deter potential investors.
Other Options to Invest in Art
Art investment funds are much like any other investment fund in that the fund managers buy and sell assets, in this case, artwork, intending to make a profit. Participation in an art fund allows investors to own fractional portions of valuable pieces of art.
Another fund is the Fine Art Fund Group, which claims to have a 20.2% average annualized internal rate of return (IRR) on all transactions and $3.3 billion worth of artwork valued. The company focuses on western art from 1500 to the present with an emphasis on impressionism, surrealism, modern and contemporary art and jewelry.
Unfortunately, no art exchange-traded funds (ETF) trade actively right now, but that is due to the lack of liquidity in the art market.
The Artprice100 Index was launched in 2018 with the aim of monitoring the art market’s value. The index tracks the 100 top-performing artists at auction over the previous 5 years to give a sense of how the art market is performing. Therefore, you invest in the 100 artists whose auction results are consistent and have the highest turnover in the previous 5 years.
The value of the index evolves depending on the individual performance of each artist in the portfolio.
Art Market Research’s All Art Index is the weighted moving average of 24 months’ worth of sales at 130 auction salerooms worldwide. Listed companies such as Sotheby’s (NYSE: BID) often look at the All Art Index to gauge the market.
One issue with art indices is that they fail to factor in the other costs of investing in art.
Buying in Galleries or Auctions
Buying in galleries or at auctions is an excellent way of investing in art. However, a lack of knowledge or understanding of the market and how it works will lead to bad decisions if you invest in this manner.
If you don’t have the required knowledge or lack time to learn about the market, then it is best to trust experts in the field and invest in a fund. For example, buying a piece from a gallery will usually mean you pay a significant mark-up, but it also promotes the artist.
Alternatively, going to galleries and attending auctions can be a great way of learning about the market, eventually leading you to make better investment decisions.
Art is Not Like Other Investments
The art market is unlike any other. Of course, if there is a major economic depression, it will be impacted, but it doesn’t stay in tune with the stock market or strongly correlate with any other market.
If you choose to invest in art or an art fund, research and experience will be key. Take the time to learn online, go to galleries and attend auctions. Learn as much as you can first.
Investing in art comes with difficulties and risks. The most important thing is to have a passion for the market and art itself. In that way, if you invest in a piece of art that eventually rises in value, it will be an added bonus.
Frequently Asked Questions
If you are looking to diversify your portfolio and you have a passion for art, then it can be an excellent investment choice. If chosen wisely, an art piece can steadily appreciate in value over time and be a great store of wealth.
You can invest in art via funds such as Masterworks and others, whereby you own a portion of individual pieces, or by buying pieces from galleries and auctions. However, buying individual pieces will take some time and effort to make sure you make the right art investment choice.
Accelerate Your Wealth
Arrived Homes allows retail investors to buy shares of individual rental properties for as little as $100. Arrived Homes acquires properties in some of the fastest-growing rental markets in the country, then sells shares to individual investors who simply collect passive income while waiting for the property to appreciate in value over 5 to 7 years. When the time is right, Arrived Homes sells the property so investors can cash in on the equity they've gained over time. Offerings are available to non-accredited investors. Sign up for an account on Arrived Homes to browse available properties and add real estate to your portfolio today.