Here’s How Art Compares to Other Asset Classes

Masterworks
October 18, 2021

Not only can investments in art yield high returns, but they can also serve your portfolio by holding their value over a period of time, especially as traditional markets ebb and flow.

The traditional asset types that most investors are used to dealing with include things like stocks, bonds, and cash. Alternative assets like art, on the other hand, are different. They’re true “alternatives” to the tried-and-true investable asset classes, and they are on the rise, increasingly impacting capital markets and mainstream business, according to the World Economic Forum.

Why? Because, in today’s global markets, it’s increasingly difficult to spread out your risk and find assets that aren’t on at least some level interconnected. Stocks in general move in lockstep with each other, driven by the popularity of index-tracking exchange-traded funds (ETFs) and mutual funds, and bonds are more often than not more closely tied to stock performance than they have been in the past.

Alternative assets like art, on the other hand, are a way to create a truly diversified portfolio. Others—like investments in blue-chip art—can help to protect against losses if the economy goes south.

[Masterworks is opening up access to blue-chip art to all investors — get started today!]

Here’s how art compares to other investment classes, and why it’s a smart complement to more traditional investments, like stocks and bonds.






Art is a long-term investment.

While stocks and bonds can more or less be liquidated with a few clicks, selling your masterpiece investment is more complicated.

While online services offer the ability to sell art, do-it-yourself online sales platforms tend to make a smaller profit. Instead, selling through an auction house, or a company that facilitates the buying and selling of assets, can yield greater returns.

Think of the household names Christie’s and Sotheby’s, which sell primarily high-end art and collectibles. Even lesser-known auction houses, however, have high commission fees and commonly charge expenses even if your piece doesn’t sell.

The bottom line: art is not a short-term investment.

Art is not a liquid investment

Stocks and bonds are considered liquid because they can be transitioned to cash in a few days in a straightforward manner.

Art, however, is not liquid. The process of finding the right buyer, which is crucial to a premium return, can be slow and delicate.






Art investments require research.

Successfully investing requires buying something at a lesser price than its intrinsic value, whether it’s an alternative investment like art or a more traditional investment like stock in a specific company.

Art is similar to other asset classes in that investors should carefully research before investing. Because art is well, art, it can be easy for investors to “fall in love” and make an emotional purchase. However, just like you wouldn’t buy a stock because you have an attachment to a brand or company, you shouldn’t buy a piece of art as an investment just because you really like it.  No exceptions.

There are no guarantees.

Art is generally an investment that holds value and can help to protect your portfolio for years to come. But, just like any investment, investing in art comes with risk.

Whether you buy a piece after thorough research and invest mostly based on an anticipated return, or you have a passion for art and can’t help but buy something because you love it, you are accepting the risk of not making a profit or worse, taking a loss.






Art is unique.

Lastly, when it comes to investing in art, remember the golden rule: not all art is the same.

When you buy a stock, you can compare apples to apples and then choose the number of apples that you’d like to buy. When it comes to art, however, the value of pieces varies greatly. Investing a lot of money on an invaluable piece of art is like buying a lot of stock in your local lemonade stand.

If you really love the neighbor kids and want to fund their summer vacation, great. But if you are looking for a return, you need to look further.

Masterworks is opening up access to the art asset class to all investors through its new, fractional ownership model. Buy a Warhol with us today!


Masterworks
Masterworks is a fintech company democratizing the art market. Our investors are able to fractionally invest in $1mn+ works of art by some of the world's most famous and sought-after artists.