If you love art, it’s only natural to consider investing in it. Even if you know little about art, it can be a great way to make money and diversify your investments.
According to the Wall Street Journal, art investments returned 10.6 percent in 2018, outperforming the stock market.
You don’t have to be an art-world insider to get started with this type of investing. We’ll go over how to invest in art and what you need to know to start your collection.
Table of Contents
- Understanding Different Types of Art
- How to Invest in Art
- How to Buy Art
- Investing in Art Advantages & Disadvantages
- The Bottom Line
Understanding Different Types of Art
Not all art is created equal. Therefore, it’s essential to understand the different types of art before you venture into becoming an investor or a collector.
While most people think of paintings, art can also include sculpture, photography, drawing, digital and so on.
You can always buy art that you enjoy using to decorate your home or office. Some pieces may appreciate and be worth more one day while others hold value only to you.
If you’re looking to buy art as an investor, it’s important to consider the artists and the work they produce.
Consider searching for works by artists who create unique pieces and have achieved a certain amount of fame.
Here are a few different types of artwork you may encounter:
For artwork to be an original, it has to be a one-of-a-kind piece by that artist. Think of the Mona Lisa by Leonardo da Vinci or Starry Night by Vincent van Gogh.
When investing in art, this is the kind of piece most investors purchase. However, they also come with high price tags that few can afford.
As you may guess, a print is a copy of the original artwork. Some can appreciate while other prints are made just for enjoyment.
For a print to hold its value, it should be part of a limited edition, only 100 or less. Prints signed by the artists have a higher value and may be a good investment.
Prints that don’t have a limit on how many are made are reproductions.
While they are great for people who would like to enjoy the work in their homes on a budget, they don’t hold any long-term value as an art investment.
High-quality prints are known as giclées (pronounced zhee-klay) and offer superior quality.
These types of copies are known as “museum quality” and may even come with a certificate of authenticity. Keep in mind that, while a great print, this is still just a copy.
How to Invest in Art
While investing in art can be profitable, you need to know the basics before considering a big purchase.
Do your homework before you spend a single dollar on a piece of art.
Since art investments can be pricey, you want to make sure you’re getting the most for your money.
There are two types of markets for art enthusiasts: primary and secondary. Primary markets feature artwork by new and upcoming artists, generating excitement in art circles.
Work that has been sold before but is back on the market can be purchased on the secondary market.
Here is what to consider before you get started:
Start with art books
The best and cheapest way to learn about art is by going to a bookstore and looking through art books.
Doing this will help you understand the different kinds of art and prominent artists in each art movement. It will also help you figure out what type of art you enjoy.
Research the artist
Once you know what type of art you like and you have an artist in mind, do some digging.
Find out more about the artist’s background, previous artwork, how much the pieces go for on the primary and secondary markets, and so on.
While new and emerging artists can be a good investment, you need a good deal of knowledge to make the call.
Knowing more about the artist’s background and previous work will give you a good starting point.
Learn more about the artwork
If you have an artist and an artwork in mind, your research does not stop there.
Before you hand over any of your hard-earned money, you need to learn as much as possible about the particular piece you’re considering.
Your first order of business – is the piece authentic or a print? If the artist is still alive, it should be easy to determine the authenticity of a piece of art.
If the artist is deceased, you will want to get a certificate of authenticity from a respected expert. Read the certificate thoroughly to ensure the artwork is not a giclée.
If possible, also get an appraisal of the piece of art. It can alert you to any issues that may affect the artworks value, such as damaged art that has been restored.
Modern Way To Buy Art
If you want to invest in art but don’t want to go through the hassle of finding, authenticating and purchasing artwork, there’s another option. Masterworks allows anyone to buy fractional interests in expensive works of art.
With more than 75 years of combined experience as collectors, dealers and at auctions, the Masterworks team reviews hundreds of great works of art.
The company uses its capital to purchase blue-chip artwork and offer the public a chance to invest in a portion of it.
Similar to the way stocks work, they file each piece of art with the Securities and Exchange Commission.
The company charges a 1.5 percent annual management fee to cover regulatory expenses, storage and gallery costs, and so on.
Each investor can buy shares in one or more paintings. Masterworks holds the painting for a five to ten-year period to allow for appreciation.
During that time, it exhibits the paintings for sale to collectors, and they can make an offer on one at any time.
Once Masterworks sells a painting, it will distribute the net proceeds to shareholders. The company is planning to offer investors the chance to sell their shares to other investors in the future.
Beware of the hype
Before you invest in a piece of art, do your research. Look at each artwork on its own and review it based on its own merits and not what someone else tells you.
Art galleries and auction houses may hype-up a piece before it goes on sale.
First-time buyers and newcomers to the world of art investing are particularly susceptible to marketing hype. Don’t have the time or patience to do your own thorough research?
Then consider investing through a company such as Masterworks since they do all the research for you.
How to Buy Art
You’ve done your research; you know what type of art you would like to purchase and from what artists. Now what? Where you go next depends on your preference.
Art dealers can help you find the perfect piece to fit your budget.
Want to try your hand at bidding for artwork? Both in-person and online auctions allow you to go up against other art collectors and investors to get the right piece for the right price. Not sure what to do?
Below are several options for finding your first artwork for your collection.
Window-shop art galleries
If you’ve never bought art before, you may not know how much art costs or how to evaluate it.
Therefore, it’s a good idea to visit a few art galleries to get a feel for how much you should expect to pay for artwork.
Some galleries only focus on established artists and only resell artwork on the secondary market. Other galleries work with emerging artists, showcasing and selling new art. Many do both.
Know what type of galleries you would like to visit and do your research before stepping foot through the door.
While there, enjoy the artwork and ask questions to get an idea of how pieces are evaluated. Plus, you’ll want to find out what additional costs you may have to pay beyond the sticker price.
One key to investing in art is learning as much as possible about the artists and types of art that interests you.
Sign up for newsletters from artists and galleries to determine what interests you and to stay on top of what’s in-demand.
The more you know, the easier it will be to evaluate opportunities to invest and jump on the right piece at the right price.
Check out local or emerging artists
Local and emerging artists can be a great option for art investors on a budget. This is where doing your homework can pay off. If there is an artist whose work you enjoy, do some research to find out what critics are saying about it.
Find out how much past pieces have sold for and if there is a market for the work.
Keep in mind that it needs to be an original and a medium that is commonly bought and sold as a collectible such as paintings, drawings, photographs, sculptures, etc.
If the artist has any upcoming gallery shows, attend one and talk to the gallery owner and other attendees to get a feel for the interest level.
This way, you can make an informed decision if you buy any of the artwork as a potential investment.
Visit art auctions
Art auctions can be a great place to find a good bargain, especially on lesser-known artists or works. Research the artwork that will be available for sale to figure out what may be a good price to bid.
Attend a couple of auctions before placing your first bid to get a feel for the way things work. This way, you’re prepared when you find a piece that fits your criteria, and you can jump right in with an offer.
Online galleries are gaining popularity with collectors looking for their next investment.
Going online means not paying for the high overhead of auction houses and galleries. They are also great places to research artists you are considering.
One place to get started is Artsy.net. You can find everything from paintings and sculptures to film, video and design. If you’re looking for contemporary art, in particular, Artspace.com is another option.
Consider art investment funds
Art investment funds (such as Masterworks) are for those who want a piece of the action without all the research.
Art funds are still young as an asset class, but they offer a way to invest in art without the full commitment of buying an artwork.
Many art funds are private and only open to accredited investors with minimums ranging up to $1 million. Before you hand over any of your hard-earned cash, make sure you do your research.
Investing in Art Advantages & Disadvantages
When it comes to investing in art, there are both advantages and disadvantages. Let’s look at some of the pros and cons of picking art over other options.
- Market Stability – Every time you turn on the television, you hear about the latest market fluctuations. If you worry about your stock investments, adding more stability to your portfolio in the form of art can help you sleep better at night. There are no market corrections or company bankruptcies to affect your art investment.
- Steady Appreciation – If you’ve done your research and bought a quality art piece, you can expect it to appreciate over time in most cases. When you get ready to sell your collection, you should walk away with a nice profit for your efforts.
- Physical Asset – Some people prefer investing in assets they can see, feel and touch. Unlike stocks or bonds, an artwork is under your power to protect, manage and store.
- Enjoyment – For many people, investing in art started when they found an artist they liked and bought a few pieces. While art is an investment, it’s also made to be appreciated and enjoyed. Therefore, it’s important to select artwork as much for its resale value as for your pleasure in owning it.
- Not Liquid – While you can buy and sell stocks and bonds quickly and easily, this is not the case with artwork. Selling a piece of art can take weeks, if not months, to finalize and make arrangements. If you need money fast, go a different route. Turning your art investments back into cash will take time.
- Special Care – Owning a piece of art can be hard work. You need to take care of it and ensure it’s protected and insured. Unlike other investments, artwork can be more labor- intensive, making the barrier to entry higher.
- Expensive – Let’s be honest; art can be costly. Especially art from better-known artists, which has a better history of appreciation. While you can buy mutual fund shares or company stocks for a few hundred dollars or less, art often requires more capital.
- No Guarantees – Even if you do your homework and buy a piece of art that should appreciate over time, there is no guarantee that it will. Art collecting is a tricky business, and just as many people (or more) lose money or break even as those who walk away with fatter pockets.
- Scammers – Unlike with other investments, there is a bigger learning curve and more opportunity to get scammed. New investors face an uphill battle of building up their knowledge base and wading through copies and prints masquerading as original artwork.
The Bottom Line
If you want to add variety to your investment portfolio, art can be a good option. It has a different risk profile than stocks and bonds, so it will balance out the rest of your holdings.
As a bonus, you get to enjoy the art piece while it appreciates over the next few years.
However, investing in art has a steep learning curve. Instead of jumping in with both feet, start slowly.
Learn as much as you can about art investing before shelling out any cash. If you don’t want the commitment, consider options such as Masterworks, which shortcut the process.