Should You Invest in Art?
Collecting art as an investment may seem like a lofty goal to those with no prior art background. While you love and appreciate art, you are probably in the wrong financial place where buying a Picasso is an option. But that doesn’t mean you can’t invest in art at all. New platforms are emerging that allow you to invest in art stocks just like in publicly traded stocks.
But if you consider yourself a budding investor, is buying art stock a good step for you? Let’s see how it works.
Why Invest in Art?
Art is an asset, like everything else. And this is what tends to do well over time.
Deloitte’s 2019 Art and Finance Report points to the Artnet Top 100 Artists Index, which had a CAGR of 8% between 2000 and 2018. This is better than the S&P 500 over the same period (3%).
Sales figures alone are enough to impress your art-loving mind. Last year, post-war and contemporary art sales totaled $ 3.88 billion, while total auction sales of contemporary and impressionist art were $ 3.28 billion.
“Most people read about how expensive many of these pieces of art are today, but they just never thought they would ever have the opportunity to own them,” said Scott Lynn, founder of Masterworks.io, a platform for investing in art.
But art is far from being a get-rich-quick scheme. As with any investment, the longer you hold it, the more likely it is to make a profit. Until recently, this meant having enough money to buy a work of art right away and give it time to appreciate it. According to Hiscox’s 2019 Online Art Trade Report, 53% of women and 65% of men consider “potential value” (return on investment) when buying art.
Enter fractional ownership that attempts to democratize art investment by cutting the work of art into small pieces. (Except that it might undermine the value of the art.)
“Obviously, the target market is those with more money than time, but they are also passionate about culture and broadening their horizons,” said Robert Berry , a gallery owner and consultant based in New York.
How shared ownership works
There are several different ways to own stock of art.
One way is to buy works of art purchased by the firm. This firm applies to the Securities and Exchange Commission (SEC) to be able to sell shares of this work of art. He can set his own requirements for the price per share and the minimum investment. The firm sets its own retention times for artwork, management fees for investors, and tax treatment for investors (so you can report your tax gains or losses). Masterworks , Otis and Artopolie are companies offering stock through this model.
There is also a third option – a mixture of fractional ownership and patronage. Feral Horses is one platform that does this: Shareholders can only own 0.01% of a piece of contemporary art.
But this model has its risks, some of which depend on taste. “The chances of a doubling of the value of a work of art is about 10%,” Berry said of the artists whose work sells for less than $ 20,000. “There is also a 10% chance that the artwork you just acquired will be worthless in a few years, as tastes in art change and an artist could go out of fashion forever.”
Things to Consider Before Investing in Art Stocks
How did you choose to invest in your current portfolio? You will want to use the same critical judgment before investing in art stocks. “None of these [platforms] offer a proven track record like your typical hedge fund or mutual fund,” Berry said.
Before you decide to try this, you’ll want to know how much money you need to invest across different platforms, as this requirement can knock certain players out of you. Lynn said the average investor in Masterworks has never collected art before and is willing to invest $ 6,000-7,000 to get started on the platform. Other platforms may let you get started for as little as $ 50.
Then you have to think about how long you are willing to invest as each platform will have a different time frame and some will have a time frame that varies depending on the artwork.
“These are investment horizons of three to seven years,” Lynn said of the subjects controlled by Masterworks. “If someone needs liquidity at any given time in their investment portfolio, then this is probably the wrong asset class.”
So if you’re still working on building your emergency fund or maximizing your retirement savings , art stocks may not be the right fit for you. In the meantime, if you plan on spending a significant chunk of your money on art in this way, discuss it with a financial planner as you would with any other important financial decision.
Finally, if you think you are ready to buy stock, you need to select an artist and artwork through a platform of your choice. “I will proceed with caution until these new companies gain momentum and credibility,” Berry said. “Companies that diversify across a wide range of contemporary, contemporary and price points would like to make sure that one disruption in an artist’s career doesn’t impact their overall investment value too much.”
Something like Monet would be much more predictable than a living artist with only a few years of auction sales in their portfolio. You must decide how much risk you are willing to take. Want to take the risk of finding a living artist whose auction results can fluctuate? Or would you rather choose a proven master with consistent appeal? Your approach to investing in art can affect your profitability.
Berry offered another tip: Find out how a platform you’re interested in decides to sell its artwork. “Knowing when to sell a work of art is how many people have created their world empires of art,” he said. “In the end, it all comes down to who makes the decisions about what to buy and when to sell.”