How to Invest In Art: Is this Alternative Investment Right for You?

When I was younger, I didn’t get art.

I’d take field trips with my class to museums in New York City (“the City”) like the Met, MoMA, and the Guggenheim. I even took AP Art History in high school for the AP credits. I developed an appreciation for it, especially realism and sculptures, but it wasn’t until later that I understood it.

You see, art isn’t about what’s in front of you. It isn’t about what the artist created. It’s about how that piece of art makes you feel, what it makes you think.

That’s why art matters, and it’s why art can look so “weird” but still have value to so many people.

What connects with you may not connect with someone else. But there will always be enough people with similar tastes to elevate the value of a piece of artwork.

Art is also finite, there can only be one original – so if several people want it, supply and demand take over, and that art’s value goes up.

All of that to say, there’s money to be made by investing in art. According to Art Basel and UBS, the global sales of art and antiques reached an estimated $64.1 billion in 2019. That’s huge!

Where to Buy Art

Have I piqued your interest in art as an investment? If so, you may be wondering how to go about purchasing investment-grade artwork. To help steer you in the right direction, I’ve come up with 7 ways to invest in art and compiled a list of art investing pros and cons. Ready? Let’s get started!

Attend Art Auctions

If you have a sound understanding of art and its value, you can go directly to the auctions themselves to purchase it.

Artnet Auctions and Sotheby’s are high-volume auctions worth looking at. Even if you aren’t buying, they’re great to do research while tending to stick to the more well-known commodities.

Artnet Auctions offers works of art at a more approachable price point. At the time of writing (February 2022), they were running a 40 Under 10 auction – 40 prints from 1960 to the present, all valued under $10,000 (it’s an auction, so the final price could land anywhere).

Sotheby’s lists art and other collectibles like jewelry, sneakers, diamonds, and even spirits. It contains a wealth of information that can be useful as you conduct your research.

If you’re reading this article, chances are you’re like me and are someone who attends art auctions regularly. If that’s the case, you probably don’t want to sink a large percentage of your “art investment allocation” into single pieces you’ll need to store yourself. If that’s the case, there are a few options for a more diversified approach.

Invest in Digital Art (NFTs)

Non-fungible tokens (NFTs) are a relatively new phenomenon that grew out of blockchain technology. Whereas one bitcoin is the same as another (just as a one-dollar bill is interchangeable with another dollar bill), every NFT is unique.

This allows for the creation of digital art in the sense that each piece of art is linked to its own NFT – you can buy, sell, trade it – and records are kept in the blockchain. (here’s a good primer on NFTs and art)

This works for any collectible, one of the most visible implementations being the NBA Top Shot. They’ve created what are essentially collectible trading cards, but instead of static images, you collect video clips. When available, you can buy packs of “cards” and then buy and sell individual cards in the marketplace.

The difference with digital art is that you don’t own the original. There can be many copies with digital art, and the creator may still own the original. That said, with everything moving into the metaverse, that may not matter much anymore. : )

Visit Art Museums

Art museums may periodically sell exhibit art to raise funds and buy different works. This process is known as deaccessioning and permanently removes a piece from the museum collection. 

The selling rules can be strict and vary by country and the existing contract with the artist or the estate of the original benefactor.  

A recent example is the USC Pacific Asia Museum released a public notice announcing an upcoming deaccession. The objects were donated to other museums or sold at a public auction.

Museums may sell eligible items in multiple groups. They may also partner with a public auction house to gain more exposure from potential buyers.

Travel to Art Fairs

You can purchase art from high-profile art fairs like The Palm Beach Show, Dallas Art Fair, Art Basel, or other venues to buy works from exhibitors. Not every item will be for sale, but you can discover many artists and potential investment themes.

There are fairs across the United States and the world each month. These events may have a specific focus, and you can usually see which artists will be attending beforehand.

Support Art Galleries

Local and online art galleries can help you find original pieces for a specific genre or region. Most artists won’t have the blue-chip name recognition meaning your investment potential may not be as high as buying something at a Sotheby’s auction. You may, however, be able to find some minor league gems. 

Browse Artist Websites

You may also be able to buy directly from your favorite artist. Most creators have online websites listing current works available for sale. 

Avantages of Art Investing

There are a lot of things to like (and dislike) about art investing, and you should understand what they are before you proceed to invest. To help, I’ve come up with the following list of art investing advantages and disadvantages.

It’s a Legit Alternative Asset

Art prices can have a low price correlation to the stock market and are one way to diversify your portfolio beyond stocks and bonds. Alternative investments may have stable or rising market values when stocks are in a bear market.

You Can See and Touch Your Investment

If you buy a physical work of art, you get to see and touch your investment. Digital assets, including stock shares, can’t make the same claim. If you’re comfortable keeping it in your home, you can admire your investment while it’s in your possession.

Many Investment Options

You can invest in many different types of art (i.e., realism, impressionism, abstract) and media (i.e., oil, sculpture, NFTs). You can also choose between well-known and emerging artists.

Opportunity to Invest in Culture

Art is a timeless way to reflect a particular culture or history. Investments don’t always have to be a zero-sum relationship where you focus exclusively on making money by investing in great businesses. 

While making money can be your main priority when investing in art, you can support an artist or pursue an art theme that’s near to your heart. You may also have some engaging conversations about art and other life topics by interacting with the art community.

Disadvantages of Art Investing

There are also some drawbacks to buying art as an investment. Here’s the list I came up with:

Ongoing Maintenance and Fees

Plan on spending a tidy sum to transport, store, and purchase insurance for your collection. Your maintenance fees are ongoing until you decide to sell. 

The purchase and selling fees can also be steep. The IRS will tax your investment gains as a collectible, a higher tax rate than capital gains for stocks.

Not a Short-Term Investment

You’ll need to invest for multiple years for your item to appreciate enough in value. Most physical assets share this same inherent trait, so you must be patient.

In the meantime, art with promising growth potential can be an excellent store of wealth. If you don’t need to churn a quick profit, a lengthy investment period may have minimal impact. 

Doesn’t Earn Dividend Income

You won’t earn recurring income from your art like dividend stocks or productive assets like rental property or farmland. 

Requires More Research

Art investing requires more research than an S&P 500 or Total Stock Market index fund, and there are fewer available research tools than for individual stocks. 

Art Market Research has been tracking fine art prices since 1976. You may also consider using a reputable dealer or art advisor to curate potential investments. 

Art Investing Dos and Don’ts

Now that you understand the various pros and cons, here are some dos and don’ts of art investing:

Know the Risks

Before investing in anything new, it’s important to understand the risks involved.

Investing in art can be appealing because it’s different than real estate investing or the stock market. You often expect to hold art pieces for much more extended periods, anywhere from five to ten years (or more). It’s less volatile because there’s no liquid market with frequent transactions. The market, however, isn’t uniform. Much like there are small-cap, growth, and blue-chip stocks, the same exists within art.

Banksy and Picasso, and KAWS are all different. Consider “big names” from the past, like Pablo Picasso and Vincent Van Gogh, as the blue-chip artists. Their work is likely to retain their value regardless of the economy. If you learned about them in AP Art History, chances are they’re a blue-chip (or pretty close).

Then you have the modern-day, still famous, but more what you could consider “small-cap” artists. You’ve probably heard of these artists, take Banksy for example, but their work doesn’t carry the same heft as a Picasso.

And then you have newer still artists, your “startups,” whose names you don’t even know yet! While it’s a gross simplification, it’s a helpful framework to think about art and other collectibles.

In the end, it’s essential to know what you’re getting into to avoid getting burned.

Do Avoid Reproductions

The rarity factor can be as important as the artist’s name. Not surprisingly, artist originals are the most valuable as it’s one-of-a-kind but also cost the most. 

You may also consider buying prints when the original is unavailable or out of your price range. These original copies can have collectible value as there is a limited supply and may come with a certificate of authenticity. 

Avoid reproductions – their infinite supply means that your asking price can only be as high as what your local art gift shop is charging. It’s kind of like buying a poster. You can enjoy the beauty of an expensive piece, but you won’t make a profit.   

Do Stick to Your Maximum Investment Amount

To avoid overspending and protect the upside potential of your art investment, I recommend researching recent selling prices for similar works. Also, it’s a good idea to use several platforms for your research. Just taking the word of the auction house or dealer may not work to your disadvantage. 

This piece of advice can be helpful if you plan on buying at auction. A fast-paced bidding war can make it easy to bid above your buying limit. 

Don’t forget to calculate additional fees that you may incur, such as buyer fees, insurance, storage, and transportation. These costs can erode your profit potential if you’re primarily looking into art investing to make money.

Don’t Count on Making a Quick Profit

Be ready to hold your paintings for several years before you can sell them for a profit. The art market isn’t like the stock market, so you can’t execute a swing trade or enjoy a price spike from the WallStreetBets.

On top of that, art is naturally an illiquid investment like fine wine or crowdfunded real estate. 

So, buy what you believe in and be ready to hold for several years. You will need the asset’s value to increase enough to cover your selling fees to net a profit.

Don’t Neglect Maintenance

You’re responsible for protecting your art investment unless you use a fractional investing platform that stores each item in its vault.

If you’re proud of your collection, you may display it at your residence. Be sure you protect your paintings from excess sunlight, humidity, and temperature fluctuations.

You may also appreciate the convenience and security of insured off-site storage. While you can’t admire the piece with dinner guests, you also don’t have to worry about mishaps or home robbery.

Who Is Art Investing Best Suited For?

Not everyone is going to benefit from investing in art. The ideal investor can invest long-term, afford the maintenance and acquisition costs, and be comfortable owning an illiquid physical asset.

Being knowledgeable about collectible art is also a huge plus. As a result, the research process can be more straightforward – this isn’t like putting cash in an index fund or target-date retirement fund and letting the fund manager make the day-to-day portfolio decisions.

If you have a limited budget or prefer short-term investments, you may decide to stay away from the art space for now. Remember, there are many other alternative assets that you can invest in and enjoy similar returns.