Investing in art goes beyond finding and buying a pretty picture — it can be a strategic piece of your portfolio.
Art isn’t a common investment, but that doesn’t mean it can’t boost your bank account. Like many atypical assets, art requires more education and research than stocks and bonds.
We’ll explore what you need to know and the steps to take before you can confidently invest in fine art.
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Art might be an inflation hedge
Many investors use fine art to get ahead financially during times of high inflation. Surprisingly, art has performed well over the years.
The Masterworks All Art index has returned 24% between 1973 and 1981 and 9.6% between 2010 and 2020 (though a Stanford study has cast some doubt that the numbers are quite that high).
It outperformed gold, which is traditionally also used as an inflation hedge, during both timeframes.
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Limited edition prints can be an affordable way to get started
Don’t have the funds to shell out for an original piece? You can try limited edition prints if you still want to invest in art on a smaller budget.
These pieces come in a small set of duplicates, preserving the uniqueness and scarcity of the art piece while making it accessible to more people.
Art is a tangible asset but it does so much more
Though you probably shouldn’t, you can touch art and hold it in your hand. The same can’t be said for stocks, bonds, ETFs, and a myriad of other assets.
Art also has practical value, as it adds beauty, culture, social commentary, and so much more to the world.
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Art can diversify your portfolio
Looking for a new type of asset to add more diversity to your holdings? Art isn’t tethered to stocks, bonds, real estate, or other common asset classes, so it’s a unique way to invest your money.
Art may provide impressive returns
According to the All Art Index, fine art has returned about 7.9% annually over the last 50 years — just under the 9.7% annual performance of the S&P 500.
Not every piece will give the same return, just as each stock in an index will perform differently. But this trend shows that there is money to be made in art investing if you know what you’re doing.
The advice of experts is invaluable
Even if you’re a fine art fanatic, you’re likely not tapped into the fine art world as an art consultant or critic would be.
By connecting with professionals in the art world, you can tap into their networks and expertise to find and evaluate the best pieces of art to invest in.
Fractional art shares exist
Just like stocks and mutual funds come in fractional shares, art does, too. This lowers the economic barrier to entry.
But it gets a little tricky because all the fractional shareholders are responsible for logistical decisions of how the art should be maintained and stored (as well as the costs) and whether it should be sold.
It helps to focus on a single medium
The art world is so broad that you can’t become an expert in everything. Select one style or medium of art (such as watercolors or bronze sculpture) to hone in on.
Art market indexes track demand and trends
Like the S&P 500 tracks the performance of stocks, some indices track how the art market is doing. These indices compile pricing data of art sales over time and can get granular enough to follow different types of art (such as impressionist or Chinese art).
While it’s difficult to quantify the value of art as a whole since each piece is different, these databases can give investors insight into how different art market sectors are trending so they can make informed decisions.
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Attend exhibitions and auctions
Even if you’re not ready to buy, it’s a good idea to get a pulse on the art investing world before you leap into it. In talking with artists, consultants, and other investors, you’ll get an idea of the hot trends and how to capitalize on them.
Buy what you love
Unlike other assets, most investors purchase artwork because they have a passion for it. If you’re buying a piece of art as an investment, you should also appreciate its display value.
Buy something you can admire for all the years you plan to hold it. After all, that’s what it’s for.
Consider who the other buyers are
If other well-renowned art investors own pieces by an artist you’re looking at, that’s a good sign. If the artist is well regarded and recognized in the art community, that reflects well on their pieces and gives them a better chance of appreciating.
Art can be risky
Like buying individual stocks, purchasing individual art pieces puts many eggs in a small basket. If you make a six-figure investment in a single asset, you’re in a bad place if the value goes down.
Because art is an alternative asset, it should be an add-on to an already balanced portfolio.
You should probably insure your investment
Like real estate, art is a tangible asset that can be vulnerable to theft, time, and the elements of the natural world.
If you plan to treat your art as an investment, it’s wise to use an insurance policy to protect that portion of your portfolio in case the worst should happen.
Buying art is a long-term play
Art isn’t an asset that can easily be flipped to make a quick buck. If you plan on investing in art, keep your investment for the long haul. It’s not easily liquidated, and selling art at an auction garners steep fees.
Moreover, styles and artists go in and out of fashion, so it’s anyone’s guess whether your investment will pay off in the short term.
While art investing isn't for everyone, if you have passion, patience, and strategic planning, it has the potential to build wealth and diversify your portfolio.
Remember, art is a long-term game requiring careful handling and a buy-and-hold approach.
If these considerations align with your goals and resources, the emotional connection and potential returns art offers can be rewarding.
FinanceBuzz is not an investment advisor. This content is for informational purposes only, you should not construe any such information as legal, tax, investment, financial, or other advice.