How to Invest in Art
Investing in art isn’t a straightforward business. For an outsider looking in, it can be hard to decide where your money should go.
For example, a seemingly simple painting with bands of green, crimson and lavender — from world-renowned abstract expressionist Mark Rothko — recently sold for $82.5 million.
Meanwhile, bizarre art pieces, such as a banana duct-taped to a wall, can sell for $150,000 (there were no instructions given on what to do when the banana starts to spoil).
Economic factors such as inflation and the crypto crash have dampened art sales, but 2022 still saw record-breaking auctions, especially as some of the world’s richest got richer and looked to diversify their investment portfolios.
Thankfully, you don't need to be an art expert or have a multimillion-dollar budget to join the likes of Bill Gates and Jay-Z by investing in the art world. Here's what you need to know.
1. Invest in art stocks
Unlike commodities, such as gold, it’s not easy to find a robust marketplace where the assets are traded. But you can invest in stocks and other tradable assets that follow the values of the art market.
For example, you can buy shares of the Artprice100, a stock-market-like index launched in 2018 — like the S&P 500 but for the art world. According to the company behind the Artprice index, it has outperformed the S&P 500.
The Artprice100 follows the 100 top-performing artists at auction within the last five years. It’s updated annually at the beginning of the year, and can be a reasonable place to start if you are dipping your toes into the fine art world.
You can also look into stocks and ETFs influenced by the art marketplace. Those include Richemont, the owner of luxury brands like Cartier, who has a history of involvement in art events, auctions, and other related activities. The RealReal is a luxury consignment platform that allows people to buy and sell high-end art, jewelry, and other collectibles.
If you’re interested in adding these assets to your portfolio, these are some of our favorite brokerage firms to consider:
Robinhood is a brokerage known for commission-free trading and support for active traders. It offers free stock and cryptocurrency trading and low-cost options trading.
2. Buy fractional shares of art
In the past few years, art has become increasingly accessible. One of the newest trends is fractional art investing, provided by companies such as Masterworks.
Just like buying shares in a company, you can do that for a piece of art. Instead of potentially paying millions, you can pay a fraction of the cost and still become a co-owner of a masterpiece.
With this process, artwork owners work with a fractional investing company to divide their work's value into shares, which can be purhcased by investors. When investors purchase a share, the transaction is then filed with the U.S. Securities and Exchange Commission.
Masterpieces come with a lot of responsibility. Art requires special storage to prevent damage and theft. It also requires an esteemed authority to vet its authenticity. As an investor, you don’t have to worry about these details since the company selling the piece takes care of them.
Masterworks is one of the leading art investment platforms. Rather than investing directly in art, Masterworks allows you to invest in securitized blue-chip paintings. When you invest with Masterworks, you aren’t buying an entire artwork. Instead, you’re buying a piece of ownership of a piece of art. As a result, you can quickly build a diversified art portfolio for a lower cost than the price of a single collectible artwork.
Once you’ve invested, you can sell off your shares on a secondary market or wait an estimated three to 10 years until Masterworks sells the piece, and each owner gets a pro-rata share of the proceeds. Remember that liquidity on these investments may be lower than you’re used to, affecting your ability to sell.
Masterworks is best for investors who want to add art exposure to their portfolio without actually owning and maintaining valuable paintings. It offers plenty of benefits, including relatively low investment minimums, an easy-to-use platform, and solid historical returns.
Pros
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Low investment minimums in high-priced art pieces
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Easy-to-use platform
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Historical returns higher than the S&P 500
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Available to non-accredited investors
Cons
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Low liquidity, since Masterworks doesn’t sell the art for three to 10 years
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1.5% annual management fee and 20% commission
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Phone screening required before you can start investing
3. Investing in art funds
Some investments are easier to purchase through a mutual fund or exchange-traded fund (ETF). These pooled investments allow you to own a part of many different assets, all through one investment. While there are no mutual funds or ETFs designed explicitly for art, you can buy funds that may follow the art markets.
You can also buy into art funds that are not listed on public stock markets. When you participate in an art fund, you own a fractional portion of many different art pieces. But you don’t actually take control of the art, so you aren’t responsible for maintaining it or finding a buyer when the time comes.
While these funds are small in number today, they may increase as securitized art investments become more popular.
Are there art ETFs?
You won’t find any ETFs buying and selling art as an underlying asset, but you can buy ETFs that are likely to follow the trends of the art markets. For example, the Global X Luxury Goods ETF focuses on companies like LVMH, Hermès, and Richemont, which sell to the same demographic as art buyers.
4. Investing in art indices
An art index tracks the sales and performance of various popular art pieces, similar to stock indices. Just as you can invest in stock index funds, it’s possible to invest in art indices that track these well-known art pieces. An example is Artprice100, discussed above.
However, art indices don’t work exactly like stock indices. After all, famous works of art don’t sell every day. And because the index only tracks the price when a piece of art sells, it can be inaccurate.
After all, some investors hold onto pieces of art for years and even pass them down to heirs. You can see why this would make the numbers in these indices outdated.
5. Invest in physical works of art
Traditionally, art was purchased through galleries and auctions. While there are now many online platforms for investing in art, the traditional route still works.
Traditional galleries: Galleries allow you to view and purchase artworks in a physical store. They may also offer services for art collectors and investors, including tracking down specific pieces of art you’re interested in. It supports a local business and may help jumpstart a new artist’s career or give you the chance to add well-known artists.
Online galleries and auction houses: These websites make it easy for anyone to buy and sell art. You can visit the website and search through hundreds of pieces available from other individual investors. When you’re ready to sell, these platforms help to facilitate the deal, typically charging a commission. Think of it as a version of eBay specific to art.
Buying physical art requires deep knowledge of the industry. You wouldn’t want to spend thousands of dollars on artwork without knowing precisely what you’re getting into. Owning collectible art also requires maintenance, and it’s wise to get specialized insurance, which many investors aren’t interested in or familiar with.
For that reason, investors who want to add art exposure to their portfolios without the research required to become well-versed in art will likely prefer securitized investments and art indices, which eliminate much of the guesswork and maintenance.
Reputable dealers only
Forgeries are a real concern. Even reputable galleries can be scammed and end up selling fake pieces. In 2014, Sotheby’s auction house sued Knoedler & Co. – once one of New York City’s most prestigious art dealers – after paying $8.3 million for a fake Rothko painting.
However, working with reputable galleries will reduce your chances of being duped since they can usually verify the origin and authenticity of the painting you are interested in.
If you become a regular at a reputable gallery, you can also get access to high-quality, limited-edition prints of originals. These can have a lasting value. In 2012, one of the first prints ever made for Pablo Picasso’s "The Frugal Repast" sold for more than $2 million.
Be aware that not all “prints” are reproductions of famous works. Some art exists only as prints, while the pieces that are copies of famous works may be called “reproductions.”
These reproductions are the ones that are truly “limited-edition" prints, since they are usually produced in a series called editions. The editions can range anywhere from a handful of prints, to several thousand. The smaller the edition, the higher the price. If the print is also signed by the artist, the price can be two or three times higher than an unsigned one.
Once you have built experience and are feeling confident, you can graduate to what’s known in the industry as blue-chip artists.
Blue-chip artists are art masters whose works have had consistent years of sales that have been confirmed at auction. Their most famous work will typically cost anywhere from $100,000 to tens of millions of dollars.
6. Invest in digital art
Provide a summary of investing in non-fungible tokens and the outlook for investing in them.
A newer form of art is digital-only. Non-fungible tokens, or NFTs, are digital works with ownership verified through blockchains, the same technology that powers cryptocurrencies like Bitcoin and Ethereum. You can buy and sell them through certain exchanges or marketplaces and hold them in a digital wallet.
During the cryptocurrency mania of 2020 to 2022, skyrocketing demand put NFTs on the map as a viable investment. Buyers made millions of dollars trading images of digital primates called Bored Apes, among many others.
However, it’s essential to consider the risks of NFTs. They’re highly volatile, and they could drop to zero at any time without warning. It’s always wise to avoid investing more than you can afford to lose.
Coinbase is a large cryptocurrency exchange offering access to many digital assets, including NFTs. You’ll find tools for active traders and long-term investors, and you can transfer your assets to any compatible digital wallet you choose.
New opportunities and risks with digital art investments
Some critics have raised the alarm about the digital art scene, arguing it is becoming a hotbed of market manipulation. There have been allegations of wash trading, where a single trader sells and buys an asset to increase its value.
The crypto crash has also led to less consumer confidence in NFTs, with 20% of one survey’s respondents saying they were "open-minded until the crypto crash." However, 34% still believe the NFT market has "a lot of potential."
Risks of investing in art
With art, sentiments can change quickly, and specific artists may come in and out of favor over time, leading to ebbs and flows in the value of their artworks. You may also see economic conditions drive prices up or down. A single news story can change an artist’s reputation.
With so many factors influencing prices, it can be difficult to truly understand art valuations without spending countless hours building expertise.
Also, remember that art investments can be challenging to sell. It’s much more complicated than logging into a stock market account and clicking the sell button. You may need to pay commissions and be very patient, as it takes weeks, months, or longer to market and sell the piece.
Advantages of investing in art
While the stock market regularly cycles through ups and downs, the art market has consistently grown over the last few decades. At auctions, we regularly see record-setting sales prices for famous artists. The record sale was for a painting titled "Salvator Mundi" by master painter Leonardo da Vinci, which sold at a Christie's auction in New York in 2017 for $450 million.
Fine art can boast impressive returns, though nothing is guaranteed, and returns can differ greatly depending on the style of art and the individual piece.
As an alternative asset, fine art is typically less correlated to the stock market than traditional assets. This can be appealing to investors looking for more protection from instability.
Best platforms to invest in art
These days, there is no shortage of online investing platforms for assets — from stocks and robo-investing to real estate and cryptocurrency. Thanks to the number of online art investing platforms, technology has also made it easy to invest in art. Below are a few of the best platforms to invest in art, some of their pros and cons, and features to help you decide which is best for you.
Yieldstreet
Yieldstreet is an alternative investment platform that allows investors to gain exposure to a variety of private markets previously only available to institutional and high-net-worth investors.
Yieldstreet includes art in its listings of alternative investmentments. To invest in art through Yieldstreet, you can choose from one of multiple funds focused on fine art. Investors can start with $10,000 and choose from a diversified pool of blue-chip, mid-career, and emerging artists.
When you invest in art through Yieldstreet, you aren’t buying an individual piece of art. Instead, you’re investing in portfolios of backed loans and fractionalized art shares. Depending on the offering you choose, you may get regular interest payments with principal repayment when the loan matures.
Most of Yieldstreet’s funds are only available to accredited investors — meaning those with an income of at least $200,000 (or at least $300,000 for a married couple) or a liquid net worth of at least $1 million.
Pros
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Large variety of alternative asset offerings
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Easy-to-use platform
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Historical returns higher than the S&P 500
Cons
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High investment minimums
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Many investments are only for accredited investors
Otis
Otis is an online investing platform that democratizes access to alternative investments that have previously only been available to wealthy investors. It was created due to the founder’s passion for art and culture, and the belief that investing in cultural objects can be a part of any diversified investment portfolio.
With Otis, you can invest in many different types of alternative investments, including collectibles, art, non-fungible tokens (NFTs), sneakers, and more. Rather than directly purchasing the assets on Otis, you’re actually buying securitized versions of the assets that have been broken into many shares. You own just one piece of each asset, along with other investors. You can trade in real-time just as you would with stocks, and easily check in on your investments from the app.
There are two different ways you can make money on Otis. First, you can trade your shares to the different securitized assets. Second, Otis occasionally receives buyout offers for its assets. In that case, shareholders can vote on the offer, and each shareholder will get a pro-rata share of the proceeds. The good news is that Otis investments are available to both accredited and non-accredited investors.
Pros and cons of Otis
Pros
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Available to non-accredited investors
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Low investment minimums for high-priced investments
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Make money either through trading or through buyout offers
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Offers more than just traditional art, including sneakers and NFTs
Cons
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Fees include 0-10% sourcing fee and 1% broker-dealer fee
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Potentially low liquidity
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Limited information available on investment returns
Pros and cons of investing in art
Now you know how to invest in art. Here are some pros and cons to consider.
Pros
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Opportunity to earn a return from valuable artworks
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Portfolio diversification beyond traditional assets
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Potential to buy fractional artwork shares rather than full artworks outright
Cons
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Low liquidity and potentially lengthy sales processes
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Can be challenging to value accurately
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You may have to wait a decade or longer to realize a substantial profit
Tax advantages when owning art
When buying art for yourself to enjoy, it’s treated as a personal purchase, and the purchase may or may not be subject to sales taxes. However, you will be subject to capital gains taxes when selling art or other collectibles for profit.
If you donate artwork to an eligible charitable organization, you can avoid capital gains taxes while also making a valuable donation to a cause you care about.
Final word on investing in art
Investing in art isn’t for everyone, but it offers a unique and sometimes exciting opportunity to get a share of an artwork by a beloved artist while earning a long-term profit. As long as you understand the risks and challenges involved with artwork investing, you may decide it’s a perfect fit for your financial goals.
Erin Gobler is a freelance personal finance based in Madison, Wisconsin. After seven years working in state politics, she left to pursue writing full-time. Now she writes about financial topics including mortgages and investing.
Cadeem Lalor is an associate editor with Moneywise. He has previously served as an editor with The Hamilton Spectator and The Toronto Star.
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