What are the Benefits of Investing in Art?
Masterworks Over the last few years, art has emerged as one of the more interesting investment opportunities out there. Of course, art has been treated as an investment for centuries. But what’s changing is access. While this alternative investment was once reserved for institutional and high-net-worth investors, today, everyday retail investors can benefit as well.
And there’s more to it than just returns.
As a collectible alternative asset, art is often as desirable on its own as it is for investments, meaning interest in paintings, sculptures and other treasures isn’t going away anytime soon. In fact, art interest has been growing in recent years has been growing as more and more thanks to increased exposure online and on social media.
Art continues to be a popular investment alternative for people looking for long-term appreciation, and it comes with some unique benefits.
Why invest in art
Art isn’t like the rest of your investment portfolio. The stock market, for example, does what the stock market does. It goes up, it goes down, and investors are usually just along for the ride. But alternative investments like art are different. Since they aren’t directly tied to the stock market their value isn’t based on an ever-changing set of market forces. Art can appreciate in value no matter what the economy or the market does, which is one reason these alternative assets can be so powerful.
Conventional investments, such as stocks and bonds, are directly correlated with the major equity indexes. When these indexes are performing well, your portfolio will follow suit. However, because the indexes are highly correlated, if one drops, the others tend to do the same.
To maintain the health of your investment portfolio, especially in times of uncertainty, it’s crucial to have assets whose prices move independently. This way if one of your assets is falling, you have others in your portfolio that can maintain or increase in value. This helps to limit and offset potential losses.
Diversifying away from the major market risks is a huge benefit for investors of all types.
Demand and value are increasing
Another great benefit of investing in art is the fact that both demand and value are increasing. According to Art Market Research, over the last 40 years, the price of art has increased more than 1,000%. These types of numbers are sure to have any investor interested!
Not only is the value of art increasing, so is the demand. There’s been an uptrend along with record prices for art and collectables. While demand will ebb and flow, holding onto artwork can be a long-term benefit if you sell at the right time.
Art is aesthetically pleasing
Staring at the numbers in your brokerage account may make you feel good, but it doesn’t stir the joy and excitement like artwork. On the other hand, art is an investment that you can enjoy over the years. As long as you take proper care of it, you can hang artwork on your walls and enjoy it for years to come. Spend time appreciating it and then sell it to the next owner when the time and demand is right!
Art rarely depreciates
Houses deteriorate, cars break down, and stocks can drop at the snap of a finger. If there’s one thing that not only retains its value but increases overtime, it’s art. Art is best compared to fine wine: the older it is, the higher price you’ll pay.
A 250-year-old painting may not have been valuable when it was first created, but today, it could fetch millions of dollars.
This lack of depreciation benefits patient investors who are willing to wait a few years to sell. Unlike conventional investments, with art, you can have confidence that you’ll be handsomely compensated.
How to invest in art
If you decide to give art investing a try, there are some things you’ll want to know ahead of time. While art can be quite the lucrative investment, it can also be expensive if done the wrong way.
Be aware of the risks: While there are many benefits to investing in art, it doesn’t come without risk. In fact, it’s probably one of the most illiquid, opaque, and unregulated assets available today.
To minimize some of the risk, take your time and do your research. Don’t rush into buying because a piece of art “seems like a good deal.” Learn as much information as you can about:
- The artist
- How many of the same pieces were created
- History of the artwork
When investing in art, be picky, be informed, and listen to your gut!
Be mindful of authenticity: In today’s world, anything that can be touched can be faked and reproduced en masse. Imagine spending tens of thousands of dollars on a sculpture, only to find that it’s a duplicate and wasn’t created by the original artist.
Unlike conventional investments, art and other alternative assets could be fraudulent. Again, this is why it’s important to thoroughly research an item before purchasing it.
To limit the risk of fakes, only buy from a reputable seller. Far too many people have been duped by scammers pretending to be legitimate art sources. It’s best to stick with buying art from trusted sources such as art galleries, museums, art fairs, and well-known auction houses.
Factor in storage and maintenance: Depending on the type of art, it may require specialized storage to preserve and protect it. For example, artwork should be stored in a facility that provides the right humidity, temperature, and light to ensure that the piece stays in mind condition.
You’ll also want to consider the cost of insurance. You don’t want to invest a large amount of money into art without protecting your investment. Insurance allows you to do just that.
There are plenty of reasons why art investing has become so popular. Buying and selling art is an effective way to diversify your portfolio while also investing into an asset that isn’t directly connected with the major markets.
