How To Invest in Art: A Beginners Guide
While people have been cooped up at home for the past 20 months or so, they have taken on many new interests. For instance, many have begun to read more, invest, or brush up on their art history knowledge. The turn in interest has been spotted in online art sales as well, especially during the pandemic.
For instance, Sotheby’s, the famed auction house, sold over $285 million in decorative objects and art in the first seven months of 2021. Three times 2019 sales! In the same period a year prior, 4000 lots were sold. In 2021, that number was 13,000.
Even pre-pandemic, in 2018, Art Basel stated that global art market sales topped out at $67 billion. Of course, not everybody is buying from Soethby’s to begin their art collections. Variables such as taste, style, and affordability mean the room to enter the realm of art investment is ripe with openings but at different points. The top reflects just one.
Although many invest in art for the purpose of admiring their purchased treasure, others go into the arena with a gameplan. They want the value of the piece to rise under their love and care for a higher ROI down the line.
Wealthy collectors do this quite well. They can purchase a piece and hire a cleaner or professional to maintain it while it sits above their mantel or on an esteemed gallery wall. Others may prefer to keep it under lock and key for added protection!
The trick is to stabilize the investment risk by paying attention to the value assigned to pieces by not only auction houses and buyers but also by curators, professors, critics, and other influential entities in the mix. The more buzz around a piece, the better!
Those types of pieces don’t typically come cheap; many of us are left to watch in awe as the art world unfolds. This is changing in the twenty-first century, however. Those hoping for a piece of the action in the art investment world should keep in mind the tips and tricks outlined in this handy guide to investing in art.
Find the Right Art Market
No art market is the same, and none remains stable on any given day. With so much variation, it can be overwhelming to find a fitting art market, especially for beginners. However, with a few options on the table, some good news: there’s something for everybody.
It is important to remember that today’s price tag doesn’t necessarily spell out any certainty about the future. What may be up today could be down tomorrow. What is more exciting is when the opposite occurs.
Sometimes a piece purchased just for fun and beauty ends up rising in value due to a sudden spike in demand. This can help when an artist becomes popular or trendy. On the flip side of the coin, the Old Masters fetch varying prices over time at a higher scale.
Whereas most will automatically think about paintings when it comes to a newbie art collection, new entrants should not rule out statues, sculptures, prints, watercolors, etchings, ceramics, photographs, and even electronic art. There are millennia of chef d’oeuvres to explore!
Don’t Write Off the Work of the Artist
It’s easy for those who don’t have a deep appreciation for artists to look at some works and say “I could do that.” The truth is, though, that only the artist did it. That work includes conceptual thinking and refined abilities that took time to develop – there’s value in the labor.
That said, the value around the time and energy put into the output depends on other factors. This is why partnering with reputable vendors, galleries, and dealers makes sense when investing in art. There’s a safety net in being able to rely on auction houses for appraisal.
Buyers are reminded not to rush the process. It can be tempting to sign for a painting that is getting a lot of attention, especially in a high-pressure sales situation such as an auction. Getting swept up in the excitement can cost the buyer if they are not careful.
Choose Your Art Investment Partners Wisely
One of the barriers that prevents many people from making any type of investment is the need to deal with someone in the middle. Whether it’s a broker, dealer, or agent, some people just want to avoid anybody getting involved.
Art galleries, for instance, are known for keeping up to half of a sale as commission. When this happens, it may seem like a better route to buy from the artist directly. The gallery, though, isn’t taking that portion just for fun – costs have been covered and promises made with that sum.
In other words, art from a gallery, or some other authorized space, ensures a degree of credibility not found elsewhere. It is a bit like buying a certified used car from a dealer with a great warranty versus buying a beater from the street with no protection. Which is likely to be resold for more a few years down the line?
Those looking to find a gallery should recall that they come in all shapes and sizes. There are international galleries in European capitals, New York City, and LA that seems to capture a lot of attention. Around the world, however, galleries big and small work hard to showcase great art.
There Is a Degree of Risk in Art Investment
Art is fun. It’s beautiful, comes with a backstory, and can earn some smart investors a pretty penny. There are no guarantees in the market, though. All investments carry risk, including art. No artist is a sure bet. Even when all the galleries, papers, and critics can’t stop gushing about an artist, there is nothing preventing a sudden shift in market demand.
Imagine an artist that everybody adores but some revealing life detail ruins their reputation – it happens in Hollywood and politics all the time. With how quickly names tend to rise and fall, especially in the age of Cancel Culture on the Internet, it is an attribute worth keeping in mind.
A New Mode: Fractional Investing
Getting in on the ground floor, for a fraction of the cost, is what the art world is all about in some ways; investing in art is following suit. Fractional investing allows a group of people to buy artwork by pooling their funds.
By doing so, some sizable returns can be projected. Of course, the logic behind a “win” is not predictable, involving risk. Then again, when the entry point is lowered, that level of risk may be more appropriate for some.
One reason people are taking to investing in art fractionally is that the going prices for artworks tend to be less connected to the volatility of the stock market. Remember, that’s not to say art prices aren’t volatile. They do change, but the trend is that the tie to the stock exchange is weak.
Is Investing in Fine Art a Good Idea?
“Good” is relative in investing, but many people are taking notice of the possibilities involved in art investment nonetheless. Websites like Masterworks are putting everyday people in the driver’s seat so to speak, especially in terms of online fractional investments in art. The virtual platform allows users to buy shares of artwork without the ability to store or display them.
The name behind the method means authenticity, giving people new to investing a fighting chance in a once overly competitive circle. Other concepts such as Maecenas and Saatchi Art offer similar opportunities.
Investment advisors might assert that this type of investment should be reflected in a diverse portfolio. Few professional investors would encourage anybody to put all their eggs in a single basket. They would also remind the masses that taxes are charged by the IRS on collectibles.
From the same perspective, buyers and investors should keep in mind that art is not a liquid asset. In other words, it is not easy to change it for cash. Bonds, stocks, and many savings accounts reflect liquid assets – the sale is fast and the cash is available.
Is Art Investing a Good Fit for Me?
The first step to any process is learning the basics – art investments are no exception. Think of it as a security or stock – you will buy low and sell high (hopefully), but you should do so only based on knowledge and contact with a reputable advisor or entity that facilitates the purchase.
The chances of buying a piece of art on a street corner and having it climb in value are very low. Making smart investments is key. If you just want to love what’s on your wall or in your space, however, then casual art appreciation might make more sense.
When it comes to the art world, instead of talking about blue-chip company names, one will discuss the finer points of Picasso, Warhol, or Basquiat in terms of both value and beauty. Knowing a thing or two about the art world will certainly help!
Investing in art is a good fit for people who have a genuine interest in art as well as for those who have a love of creating a diverse investment portfolio. If you are two for two on these fronts, that is all the more reason to get started! Ultimately, only you (and maybe an entrusted financial advisor) can determine if, when, and how much investment in art makes sense for your unique situation.
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