As an investor, one way to diversify your portfolio and increase your overall returns is to look into alternative asset classes. You may be looking beyond the stock market and real estate and wondering about your options.
Art can be considered an alternative asset class that has the potential to provide you with returns on your investment.
However, art investing takes a little time to understand, and you need to know the resources that will help you do it in the smartest way. In this guide, we’ve put together what you need to know about how to invest in art for beginners.
How do art investments work?
Investing in art basically consists of buying a piece of artwork, holding onto it, and then selling it for what you hope is a higher price down the road. The idea is to find art that has the potential to increase in value over time so you can sell it later. Anytime you get involved with investing money, that’s the basic goal.
It can feel a little daunting when trying to get into art investing, mainly because we often think of “blue chip” art — and how expensive it is. Blue chip art represents the type of art that has already shown its high value in the market. Think well-known works of art like those by Jackson Pollock or Pablo Picasso.
Certain works and artists have already proved their staying power. For example, according to Sotheby’s, 86.4% of Andy Warhol’s works sold at auction increased in value, and the average compound annual return of his works sold at auction between 2003 and 2017 was 14.2%.
If you can get your hands on an authentic piece, you could potentially see dramatic returns. Some of the fine art investing with big recent sales include:
- Jean-Michel Basquiat: Untitled, 1982, which sold for $110.5 million in May 2017.
- Andy Warhol: Silver Car Crash (Double Disaster) sold for $105 million in November 2013.
- Banksy: Game Changer, which sold for $23 million in March 2021.
- Picasso: Les femmes d’Alger (Version ‘O’), which sold for $179.4 million in May 2015.
In fact, art can provide competitive potential returns, with art seeing an estimated annualized return of 8.3% from 1985 to 2020, according to a report from Citi Global Perspectives & Solutions. This isn’t too far off from global developed equity (shares of companies in developed areas worldwide), which saw annualized returns of 9.9% during the same period. And, according to the report, art outperformed a number of other asset classes during that time.
However, even with blue chip art, the value is impacted by the market, including demand. The market can be volatile, especially with more recent artworks. The value of a piece of art depends on an artist’s reputation, demand for that artist’s work, the economy, and other factors.
On top of that, it’s important to note that art is considered a long-term investment. When you buy art, it’s not usually to flip it a few months later. Instead, you’re expected to hold onto it for a few years. Plus, art is also illiquid, meaning that it’s difficult to convert to cash. When investing in art, you need to be prepared to have your money tied up until you can find a buyer willing to pay what you want.
Kinds of art you can invest in
There are many strange things to invest in, including in the art world. While we often think of paintings when it comes to art investing, the reality is you can also invest in photos, sculptures, street art, and just about anything else. You can invest in contemporary art as well as older pieces and prints of famous artwork as well as the original works themselves.
Depending on the notoriety of the piece and the reputation of the artist, almost anything can be seen as an investment:
- A photograph by Ansel Adams sold for nearly $1 million in December of 2020.
- In 2019, a piece of performance art in the form of a banana duct taped to a wall sold for $120,000.
- Once Upon a Time in Shaolin, a one-of-a-kind album released by Wu-Tang Clan, was sold to a private buyer for more than $2 million in July of 2021.
Today, with the rise of digital assets, it’s even possible to invest in digital art. A non-fungible token (NFT) allows you to own unique digital art in the form of images, video clips, and music. Beeple, a famous digital artist, routinely sees prices in the millions for his artwork, with Everydays - The First 5000 days, selling for $69 million in March 2021.
Pros and cons of investing in art
- Physical (or digital) asset you control. Art investing allows you to actually own something and you control where it’s held. You can touch the physical artwork, and with digital art, you know that you have something truly unique.
- Aesthetic appreciation. For some who enjoy investing in art, part of the advantage is having something beautiful to look at. Art has a purpose as well as the potential for gain.
- Supporting an artist. For those who buy art from living artists, it can feel nice to know you’re supporting someone in their creative efforts.
- You have to physically care for the artwork and/or pay for storage. Deteriorating artwork doesn’t retain its value as well. You need to either take care of the artwork yourself or pay for storage, which can be expensive.
- Takes a lot of knowledge to invest well. There’s a steep learning curve and you need knowledge of the art market, awareness of trends, and access to resources if you want to make profitable choices.
- It can be difficult to know what will be popular. Choosing the “right” artist or trend can be challenging. If you pay a lot for a piece of artwork and it loses value, you’ll be out your original investment.
How to get started buying art
There are both primary and secondary markets for art. A primary market for art is when you purchase directly from the artist, or sometimes get the art from a gallery. The primary market is the first time a piece of art has been sold. After an item has been sold once, it enters the secondary market. Anything after that first sale is considered secondary.
Auction houses are typically secondary markets. Usually, auction houses sell artwork that someone has held and is trying to make a profit from. Auction houses exist both in-person and online. Two of the most well-known and high-end auction houses are Sotheby’s and Christie’s.
However, there are online auction houses like Artfinder and Society6 that can also provide you with access to artwork, particularly if you’re looking for something a little less well-known.
When investing in art, it’s important to understand that the price the item sells for, known as the hammer price, isn’t the only cost. When you buy art at auction, you also end up paying a buyer’s premium in many cases. At places like Sotheby’s and Christie’s this can be as much as 30% of the hammer price. If you want to become an art investor, then be prepared for that sticker shock.
Art galleries offer the chance to see a variety of pieces, and they’ve already done some of the heavy lifting when it comes to determining whether something might be valuable. However, you still have to do your homework to decide if the piece has potential beyond something to hang in your home.
Many art galleries are primary markets because they display pieces that haven’t been sold in the past. Depending on where you live, you might be able to find good local galleries.
If you’re interested in buying directly from the artist, attending an art fair can be a way to do that. However, there are some prestigious fairs where the artist might not be present.
Some of the more well-known art fairs include:
- The Armory Show in New York
- TEFAF New York
- TEFAF Maastricht
- Art Toronto
- Frieze London
- La Biennale Paris
- Melbourne Art Fair
- India Art Fair
- ArtBo in Bogata, Colombia
- Contemporary Istanbul
- Art Dubai
These fairs can be good places to find upcoming artists, but at the same time, as with all art investing for beginners, it’s important to do your homework. While prestigious art fairs curate works likely to rise in value, there’s no guarantee, and any piece of art may increase or decrease in value.
You can also go to local and regional art fairs to see works by smaller artists. While these artists might not become huge, you might be able to find hidden gems that look good on your wall and could potentially be sold for a little more later.
If you’re more interested in digital art, you can follow good artists and buy interesting NFTs by getting on an NFT marketplace. On top of being able to buy individual pieces, some platforms offer NFT “drops” that amount to digital packs of artwork, some of which could turn out to be valuable.
Some NFT marketplaces to consider include:
- Nifty Gateway
Many of these platforms take credit cards, although you can also pay using cryptocurrency.
The easiest way for beginner to invest in art
If you want to learn how to invest in art, and you’re a beginner without a lot of capital, one of the easiest ways to get started is to buy fractional shares. With fractional investing, you actually buy interest in a piece of artwork.
Basically, a platform buys a piece of artwork, and you can purchase “shares” of that item. You buy in, and are entitled to a percentage of the proceeds when the artwork sells. This is considered a secondary market because the artwork has already been sold before.
Using a platform to invest in fractional artwork is the most accessible and affordable way for a beginner to get started:
- First of all, someone else has done a lot of the homework and evaluation for you.
- Next, you don’t have to buy an entire piece of expensive blue chip art. You can invest what you can afford or the amount that makes the most sense for your investment portfolio.
- Finally, there’s an element of liquidity if you work with a platform that allows you to trade or sell shares. You don’t have to worry about trying to sell the entire piece of artwork.
These platforms offer a chance for you to get access to art without having to spend millions of dollars. However, investing in art this way still has risks. It’s a good idea to check out the reviews before moving forward.
Is buying art a smart investment for you?
Before you get started with art investing, it’s important to consider whether it’s the right choice for you. Here are some of the things to consider:
- Do you already enjoy art? If you already like art and enjoy it, you’re more likely to know something about it. Or, if you don’t know much about it, you might be excited to learn. You’re more likely to have better results if you have some interest and knowledge — or are passionate enough to learn.
- Do you already have a well-diversified portfolio and can tolerate committing a small amount of it to a riskier alternative investment? Because art is an alternative investment and can be volatile in some cases, it might make sense to invest only if you have already handled the diversification of your portfolio. The money you risk with art investing should be money you can afford to lose or to have locked up in an illiquid investment for several years. Anytime you decide to invest in alternative assets, it’s a good idea to have the rest of your portfolio in less risky assets.
- Do you have a plan for the artwork? It’s also a good idea to have a plan for the artwork. When do you want to try to sell it? If you can’t sell it, would you be happy to own it for a long time?
Understanding the risks is important before you learn how to invest in art, especially since you might not get back what you paid for the piece.
Is fine art a good investment?
Investing in fine art could be a good investment if you know enough about the market to make good selections and increase your chance of a return. Depending on what you get, you might be able to turn a good profit. However, investing in art isn’t the right move for everyone, it’s inherently risky, and past performance of the art market is no guarantee of future returns.
How do I start investing in art?
How much money do you need to invest in art?
How much money you need to start investing in art depends on what you decide to buy. If you want to buy a famous artwork, you might need millions of dollars. If you want to get involved with fractional art investing, you might only need $1,000 to get started. You can also find NFTs and artwork at some galleries and fairs for less than $1,000. Read our Masterworks review for more info on getting started in art investing without a lot of money.
Is art investing profitable?
As with any investment, art could be profitable. However, you might not always know which pieces have the possibility of becoming the most profitable. When you choose the right pieces by the right artists, you could potentially make a lot of money by investing in art.
Investing in art carries some level of risk, just like any other investment. While it’s possible to make money in the long term with art investing, it’s not guaranteed. You have to be ready to take losses if things don’t turn out the way you hope.
However, if you love art and can appreciate the aesthetics and history, it might be for you, especially if you’re careful about how you spend your money and carefully choose what you buy.