How to Invest in Art

November 7, 2019

Investors are constantly seeking new ways to gain returns without spending millions of dollars. For some time, the wealthy have used artwork as part of their investment strategies, with many allocating between 3 and 5 percent of their portfolio to art. If you haven’t already incorporated artwork into your portfolio, you may be wondering how to invest in art.  

Diversifying Portfolios With Art Investments

One of the great things about investing in art is it has no correlation to the stock market. This means that even when the stock market crashes, the value of paintings may still rise, allowing for good diversification of investments. This helps mitigate the risks of your portfolio. 

Art has provided relatively higher returns over the past few decades than most savings accounts. Data from 1.2 million auction house sales of paintings, drawings, and prints show that between 1957 and 2007, art increased in value by 3.97 percent a year.

In 2018, it was reported the average return on art investments is around 10.6 percent. If investors are looking for a way to diversify their portfolio, it could be a good move. However, not every piece of art appreciates in value the same way. It is also important to note many art investments take a sizable initial investment. 

Art as a Hard Asset

More investors have gained confidence in the art segment, opting to invest in it rather than the more exotic products which often confuse investors. With art, it is clear what you are buying. After the financial crisis, many investors lost significant amounts of money in products that they had very little understanding of. This caused many to turn back to investing in art. 

Art is a long-term investment. This means that even when the price of art dips, investors should consider that the price may recover with time to eventually surpass previous highs. Experts recommend a time window of 10 or more years to be observed in order to realize good returns. 

Overcoming Barriers to Entry

Unfortunately, for many, high barriers to get into the market prevented many households from acquiring art as many works worth investing in cost north of 6 figures. 

Masterworks, a company that buys pieces by renowned artists, makes it possible to invest in the art sector even with relatively low amounts of capital. With only $20 per share, people can now invest in paintings. The bluechip segment of the art market has outperformed the S&P 500 for over 20 years. Masterworks has created a gateway for more people to take advantage of these trends.

Each year, Masterworks’ experienced team reviews hundreds of investment opportunities in the art sector. It works closely with experts to uncover works in the blue-chip segment with the potential to provide good returns. 

The organization acquires blue-chip artwork from major auction houses. Such pieces of art are usually considered to be representative of the top 100 artist’s mature style which helps to ensure that the value of sales is high. 

How to Invest in Art with Masterworks

Masterworks takes the difficulty out of learning how to invest in art. It purchases paintings using its own capital. After purchasing them, the company offers circulars to the SEC (Securities and Exchange Commission). Following qualification of the offering by the SEC, investors can buy shares in art by the likes of Pablo Picasso and Andy Warhol. Artworks by mid-career artists may also be purchased. At a later date, the paintings may be sold, allowing investors to realize the returns on their investment. 

It helps to carry out extensive amounts of research to make better-informed investment decisions in the art market. There are many nuances of the markets which investors must be aware of. Better awareness of the markets can improve investor experience as owners of artwork. As with any other type of investment, be sure to do research and get professional advice before making any definite decisions.

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