During this lingering period of disruption fueled by the pandemic and widening economic uncertainty, many investors have been relatively hesitant to put their money in traditional asset classes such as stocks and bonds. Increasingly, such investors are seeking to offset the volatility of the stock market by turning toward alternative investment assets such as art. But when should you consider investing in art? Here’s that and more.
The Benefits of Investing in Art
Because art is not tied to stock market fluctuations, it’s a much more stable investment. Such investments are also a hedge against inflation, which is particularly applicable today, in the United States especially. Moreover, art consistently produces average returns of 7.6 percent, which is on par with the long-term returns of bonds.
What with the digital transformation of the art market, which has been accelerated by the pandemic, investment opportunities will likely increase. Such technology has certainly obliterated entry barriers for potential investors. In 2020, online sales hit a record $12.4 billion, two times that of the year before. And some 94% of auction houses recently surveyed anticipate a hike in online sales over the next five years, according to Kooness.
People are also figuring out that investing in art is a good way to diversify their portfolio, especially to produce passive, secondary income streams.
How Does One Invest in Art?
There are multiple ways to go about it. Traditionally, investors go to art fairs or use a dealer. But unless you have industry connections, buying physical works outright can be challenging and wind up costing a pretty penny.
We mentioned the digital transformation of the art world, and yes, the digital art space is expanding. For instance, there is “fractional” investing, in which investors are permitted to just buy shares of art, which every share representing a percentage of overall ownership. This makes art more accessible to people other than blue-chip investors.
There’s also art fund investing, in which you generate monthly income through investment in loans that are backed by art.
Both fractional and art fund investing are offered by the alternative investment platform Yieldstreet, where you can pursue an art investment for a relatively small amount.
How Should One Prepare to Invest in Art?
There are a few steps you can take, including:
- Research. You want to stay abreast of the latest market trends and become familiar with artists as well as artistic movements. Digital platforms such as Masterworks can help you track the art market.
- Talk to people. And that means curators and art advisors and the like.
- Examine trading histories of the works selected. You want to get an idea of growth rates so that you can compare.
- Check authenticity. This is particularly true if you purchase art online. You do want to make sure that the website where the art is being offered is trustworthy, and you should also look or authenticity certificates.
So, when should you consider investing in artwork? In all sincerity, that time is now, particularly considering the current disruption and economic instability. As it is, art has become a ginormous asset class. We’re talking $60 billion in annual transaction volume and an approximate worldwide value of $1.7 trillion – that’s “trillion” with a “t.”Historically, art investments have been confined to institutions and uber-wealthy types. However, with the growth of online investing, art is significantly more accessible to the average investor. That’s in addition to opportunities posed by art funds and fractional investments, both of which are offered by Yieldstreet.
