How to Buy Art as an Investment

Masterworks
September 23, 2021

Want to build your own art collection and grow your wealth? Here’s how to buy art as an investment asset.

Art moves us. It inspires us. It enthralls us. But it’s also much more than just a pretty picture to hang on your wall—these days, ordinary investors are treating art as an investment asset.

This is driven in large part by Millennials, who are more likely than any other generation to view art as a valuable asset class. 33% of Millennial collectors agree that art can be leveraged to build wealth. That’s a big deal, considering that Millennials and Gen Z will account for 45% of the luxury goods market by 2025.

Thinking of leveraging art as more than just a beautiful item? Here’s why art is important as an investment asset, and how to buy art as an investment (hint: it looks a little different than dropping by your local big box store).






Why Use Art as an Investment Asset?

Inevitably, mega-auctions in art meccas like New York bring out a familiar trumpet that art outperforms other assets like real estate. And it’s easy to get swept up in those historic numbers, like a little painting by Leonardo Da Vinci called Salvator Mundi, which at $450 million is the most expensive single work of art ever sold.

But is art a good investment? It can be—if you’re realistic. To understand why, it helps to understand why art is unlike any other asset class.

Why is Art so Expensive?

For example, why is art so expensive? Most art isn’t, but the expensive ones drive the market.

The problem is that art demand is not evenly distributed among living artists. The art market is one giant consensus machine, and high demand for a small number of artists drives prices up.

In addition, art pricing (like the universe) is driven primarily by dark matter—the invisible background data that drives asset prices. These are mostly museum accessions, black holes into which masterpieces vanish never to be sold again. Add in the trend for philanthropic giving of highly taxable estates and you have high prices for a few trophy pieces, which leaves…the rest of the market.






So, Why Invest in Art?

No investment is guaranteed to appreciate. Art isn’t either. That’s simply the nature of investing.

Art can appreciate. Art can generate major capital gains. Art can be a hedge against inflation. And yes, many of these qualities crop up in the crème de la crème of the art world—your multi-million-dollar blue-chip artwork by artists gracing museum walls. The good news is that it’s now possible for regular investors to participate in the art world on this level (that’s what we do here at Masterworks).

For the ordinary investor who purchases their own collection, art has two valuable characteristics as an investment asset: it’s a tangible asset and it has very low stock market correlation. In other words, art derives value from its own intrinsic qualities, not the economy.

If you invest in art wisely, you can at minimum leverage those qualities to your advantage if you need a rescue asset. At best, you can sell for a profit.

How to Buy Art as an Investment

For ordinary investors, you have two options to invest in art.

One option is to take advantage of the higher liquidity at the high end of the market. Since you don’t have a millionaire’s budget, the only way to do this is by buying shares in art (that’s what we provide at Masterworks).

The other option is to purchase art yourself. This gives you ownership of a personal collection, though your budget may limit your options. That said, if you have a bit of money to get around with, there are ways to buy investment art. For this, you’ll need two basic strategies:

  1. Buy time-tested artists whose work will continue to appreciate (if you have a higher budget), OR
  2. Buy emerging artists poised for takeoff (if you have a lower budget)

Here’s how to get started.






Know Your Budget and Understand Art Sales

First, you have to know what your budget is and understand how art sales work.

While auctions get the most attention, they’re just one facet of art sales. You can buy art at:

  • Galleries
  • Auctions
  • Art school shows
  • Art fairs
  • Artist studios

This is easier if you live in a major city, like New York or L.A. If you don’t, you can commute to one. You can also rely on online vendors like Saatchi and Artsy—just make sure the seller is legit.

Find an Expert and Have Faith in Middlemen

If you’re not an art world aficionado yourself, it pays (literally, it pays off) to find an expert. For one thing, they know the terminology and how everything works. But most importantly, they have inroads into art world circles, which will get you access to market-moving information that only circulates in social circles.

Plus, they can put you in touch with experts you’ll need to facilitate art ownership down the line, such as: an authenticator (fake art has an astonishingly long and colorful life), an art insurer, and an attorney to negotiate the sale contract.

Oh, and while it’s easy to distrust the middlemen (a la gallerists) have some faith in the middlemen. It may seem absurd for a gallery to take a 50% cut of the sale, but keep in mind that galleries don’t stock artists on a whim. Every gallerist keeps a stable of artists, fronts them money to make art, drops major capital to promote shows, and even starts conversations to get the artist featured in major shows. It’s a business relationship that’s lucrative on both sides.

Granted, you need to do your homework to make sure the gallery is established and has a strong reputation. But give the middlemen some credit. And once you get in with a good middleman as a steady client, they’ll take care of you. Trust in (and invest in) those relationships.

Investing in Art Without a Millionaire’s Budget

Figuring out how to buy art as an investment is a time investment in itself. It’s not like buying stocks—you have to take time to cultivate the knowledge and relationships you’ll need to navigate art purchases and sales. But once you do that, you’ll be able to slowly build your collection.

Of course, for those who want a simpler route and want to take advantage of the gains at the top of the market, we’re here to help. Here at Masterworks, we’re on a mission to democratize blue-chip art investing, so we serve as your expert partner. We do the research for you so that you can invest in vetted and authenticated blue-chip art with the highest potential risk-adjusted returns. Ready to invest in something you love? Fill out your membership application today to learn more.


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.