Looking to diversify your portfolio? Learn everything you need to know about investing in art for beginners.
Investing in art has become more accessible than ever now thanks to the internet. Fine art investing is one of the best ways to make a balanced portfolio that provides you with not only good returns over time but also enjoyment and excitement along the way.
If you are interested in fine art investments, then this article will provide you with all the information you need to know about investing in fine art. With the right planning, research, and knowledge, it is possible to earn a great return on your investment.
In today's article, you'll learn why fine art can be a great investment, how much to invest based on your portfolio, the value of fine art, and how to invest in fine art.
This post is all about investing in art for beginners.
Why Invest in Fine Art?
You can further diversify your investment portfolio by investing in alternative assets such as fine art, antiques, and more.
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If an investment portfolio contains a wide selection of different assets such as stocks, bonds, real estate, and cash, it is called a diversified portfolio.
Fine art investing is an extra way to diversify your portfolio, as the value of fine art varies from investments in the stock market.
Unlike other traditional and alternative asset classes, high-quality fine art has seemingly become recession-proof in some instances. Even during the recent recessions, the performance of fine art has not seen nearly the same downturn compared with other investment assets such as stocks, gold, and oil.
However, it's important to make the RIGHT investments in fine art in order to see a profitable return.
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How Much Should You Invest in Fine Art?
Before you start investing in fine art, the first step is to decide what proportion of your portfolio should contain fine art. Your investment portfolio should contain a range of different traditional and non-traditional asset classes to have a diversified portfolio.
Types of investments to consider for diversification:
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- Bonds
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- Traditional Bank Accounts
- Real Estate
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- Gold
- Art
However, the amount to invest in fine art will depend on your individual circumstances such as your investment goals, risk tolerance level, and the size of your investment portfolio.
You'll want to conduct relevant research to decide on the maximum amount you can invest with confidence.
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How to Determine the Value of Fine Art
Fine works of art are not only beautiful and enriching but can also be a solid investment.
However, before investing in fine art, it is crucial to understand the value of individual pieces.
The value of fine artwork is determined by several factors, including:
- the demand for the artwork
- the artist of the artwork
- the condition of the art
- if it is signed by the artists
- if it is numbered by the artist
- the number of prints of the artwork
The value of an expensive or well-known piece of artwork by a well-known artist or an up-and-coming artist will increase over time.
The key to getting a good return on investment is doing heavy research to determine the best pieces to invest in.
How to Invest in Fine Art for Beginners
There are several unique ways to invest in fine art. Let's dive into some of the best ways to invest in fine works of art for your diversified portfolio.
If you are new to fine art investment, consider working with a financial planner to see if your portfolio is appropriate for fine art investing before you invest in this type of asset.
An art investment fund allows investors to partially own an artwork or collection of artworks without ever taking possession of the physical asset.
If you want to own a piece of artwork without a significant investment, then you may consider investing in shares of fine art.
Typically, an art investment fund charges an annual management fee and takes a defined percentage of the profit when you sell your shares.
For example, if you want to buy and sell shares of fine art using a company called Masterworks, they charge a 1.5% annual management fee and take 20% of the profit of your shares when you sell them. These fees help pay for the management cost of physically storing the artwork at optimal temperatures, etc.
However, the barrier to entry is low so you can invest in fine art with as little as $20 using an art investment fund.
Some reputable art investment funds include Masterworks, Arthena, and Artemundi.
Buy Fine Art at an Auction
Art auction houses are a great place to see pieces of art in person and get a good deal on artwork from different periods and styles.
If you love a piece of artwork, you can bid on it.
If you win the auction, you'll buy that artwork for your portfolio.
However, make sure to learn about the fine art market, do your research, and stick to your budget before investing in artwork through auction houses.
Buy Fine Art at an Art Fair
Art fairs are a great place to buy original pieces of art.
When you are at an art gallery or fair, you can see artwork by many different artists and talk to other art collectors in person before deciding to invest in a piece of artwork.
Depending on your location, you may find top-quality pieces of art from top galleries and artists from around the world at art fairs in your area.
Invest in an Original Art Print
If you cannot afford to buy an original piece of fine artwork, consider buying a print of an original artwork you love.
When an artist sells a limited edition of the original piece of artwork, the art is usually signed and numbered.
So, consider buying an edition if you do not have a lot of money to invest in an original piece of art.
How to Maintain an Art Investment
A physical piece of art must be kept in good condition to ensure that it maintains its quality and security.
The longevity and value of a fine art piece will depend on how well you maintain it. Some art pieces will need more specialist upkeep than others.
It is very important that the art is stored or displayed in a suitable environment.
Protect your artwork from direct sunlight, humidity or moisture, or extreme or frequent changes in temperature.
If you do not have the means, the time, or the right knowledge to preserve your art piece, then hiring a company that offers the service of properly storing your art piece for a monthly fee is an option for you.
Pros of Investing in Fine Art
There are many pros of investing in fine art that can make it attractive to diversified investors.
First, investing in fine art can be a good hedge against inflation, as the value of art is not tied to the performance of the stock market
It is also a great alternative way to diversify your investment portfolio
Thirdly, fine art is generally considered a safe investment, as the volatility in art markets is lower than that in equity markets.
Fourth, it is a good investment vehicle for those who love art and want to enjoy the ownership of a piece of artwork. You get to diversify your portfolio while enjoying your investment on display.
While art can be a great investment, there are also several cons to consider.
Cons of Investing in Fine Art
Investing in fine art certainly takes a lot of research. Here are some of the downsides of investing in fine art that you should be aware of.
First, selling artwork immediately can be hard, as art is an illiquid asset.
Like any other investment, there is always the chance it could decrease in value.
Investing in fine art does not always offer the best return on your investment unlike traditional investment vehicles such as stocks, bonds, and commodities
Unlike other investment vehicles like stocks or real estate, they do not generate any income for their owners.
In addition, if you possess a piece of artwork, it will require ongoing costs for maintenance, as described above.
Last but not least, a physical art investment will, of course, have an inherent risk of being damaged or lost.
How Long to Hold Onto Fine Art
Investing in fine art should be a long-term investment strategy. If you hold onto your art piece for the long term (e.g., 10 years or more), you will improve your odds of achieving a reasonable return on your investment in fine art.
Only buy a piece of artwork that you appreciate and that has the potential to appreciate in value.
Investing in Fine Art for Beginners Summary
Investing in fine art can be a good way to diversify your portfolio while also enjoying the ownership of a piece of artwork.
Always make sure to do your own research to determine the best artwork investments for your lifestyle, risk tolerance, and diversification strategy.
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