Investing in artworks was once believed to be the domain of the privileged, economically affluent classes who possess money and taste. However, various factors have contributed to the fading of that belief, including expanding the art industry into the digital space.
When the art market entered the digital sphere, fuelled by the Covid-19 pandemic, it attracted an increasing number of artwork investors, both experienced and those new to the market. Investing in artworks is a form of alternative investment and holds tremendous promise.
If you are unfamiliar with art investment, its benefits, and its risks, here is a guide to help you learn more about it.
What are the reasons behind investing in art?
- The rapid expansion of the market
According to statistics, the online art market had a value of around 5.65 billion USD in 2021 in the USA, with experts expecting it to cross 5.8 billion USD by 2022. So, the first reason is the enormous market size with worldwide sales. The potential for rapid growth attracts many investors who look for higher returns and increased opportunities.
- Carries a low risk
Despite investing in different index funds, stocks, bonds, and other assets carry an inherent risk. You will lose money in the event of a market downturn (also referred to as a stock market crash). In contrast, art is immune to such market fluctuations.
- No depreciation of value
You could have art hanging on your wall for an unlimited time, yet that will not decrease its value. Unlike houses, cars, computer equipment, rental properties, and land, artworks do not suffer from value depreciation.
- Protects you against inflation
Art investing is a hedging tool against inflation. Hedging refers to an investment strategy that protects you from the risk of future financial losses. The reason behind this is its immunity to inflation, which is not enjoyed by any other asset except gold.
Interestingly, the prices of artworks increase during inflation rather than decrease, inevitability increasing its appeal as an investment option.
- It enjoys an aesthetic appeal
Paintings are perhaps the only form of asset, except precious metals like gold, with an aesthetic value and emotion attached to them, which is reason enough for some to buy this asset.
Types of artwork you can invest in
There are four categories of artwork that you can invest in.
- Old Masters
- Blue Chip Art
- Art Funds
- Emerging Artists
They differ from each other on factors like expected returns and availability.
Old Masters – Old Masters refers to works displayed in museums and history classes. Created by renowned and classical artists like Masaccio and Michelangelo, they have the costliest price tags.
Blue Chip – Blue Chip art includes works by artists with an everlasting cultural appeal, such as Warhol and Picasso. Most of these pieces sell for more than 10,000 USD and enjoy a high attraction amongst individual investors and fractional owners of modern art.
Art Funds – They are helpful if you come across a work whose price exceeds your budget, as they let you buy shares of an art index.
Emerging Artists – You can invest in impressive works by emerging artists at a low price. Up-and-coming artists sell cheap because they are still looking to enter the market, find success and capture the attention of enthusiasts.
What are the various investment options?
Although you can invest through auction houses, art galleries, and fairs, the best option is buying fractional shares on a platform that allows you to purchase shares of particular artworks.
When the company sells a painting, you receive a share of the proceeds. It is the safest investment option for starters because of various reasons.
Firstly, the platform’s research team selects works with a high market value. Secondly, the price is lower since the company does not require you to buy the entire work. Thirdly, you have the advantage of liquidity when the platform offers you the option of purchasing and selling shares in a secondary market (directly between the investors without the platform’s investment). Liquidity here refers to the higher chances of converting shares to cash.
As a beginner, you should learn more about investing in artwork. Doing the necessary research increases your chances of profits and returns you can expect from the investment.