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For most of the last decade, the stock market has gone “up and to the right.”
However, that has not been the case over the last 18 months in the financial markets. This volatility has been brought about due to a number of factors such as the COVID-19 pandemic, unprecedented inflation and Russia’s conflict with Ukraine – to name a few.
With increased volatility in our financial markets, many investors have started looking at diversification opportunities. Alternative investments serve as a great option for those looking to diversify, as they have little correlation with the overall stock market.
In this article, we will be exploring the alternative asset class of artwork that investors big and small are flocking to.
So, how exactly does an investor even make money with art?
Well, in this article, we cover just that! Let’s dive in.
How Can Artwork Investing Make You Money?
Earning money with artwork is relatively straightforward:
- You make money with artwork through asset appreciation, or buying low and selling high
- Artwork isn’t a yield-bearing asset, meaning you do not earn any interest or dividends while you hold onto it
Consider Johannes Vermeer’s oil painting, Girl With A Pearl Earring.
This painting, pictured below, is dated to 1665.
Arnoldus Andries des Tombe actually purchased the work in 1881 for a mere $27 dollars. The painting was not in good condition and was not even known to be a Vermeer.
Today, the piece of work is estimated to be worth well over $30 million.
While the concept of earning money with art is simple to understand, the actual practice can be more difficult.
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Artwork Is A Long-Term Investment
While the above painting did grow in value tremendously, this is a cherry-picked example to show how artwork can make you money.
Keep in mind, a big component to the growth in value is the fact that the painting is over 350 years old.
Instead, let’s talk about the more likely scenario that would play out today with artwork investing.
Imagine you were to acquire a piece of artwork at a gallery, auction or art fair:
- If you purchased a work of art and the artist were to go on to have a successful career, then the value of that piece could increase in value
- Conversely, the artist may never become well-known and in turn, the piece of artwork may never increase in value, or potentially decrease if you overpaid
Investing in art requires significant patience and an understanding of trends in the art world. It also requires an ability to stomach risk.
So, at the end of the day, success with artwork investing comes down to picking the right artist who goes on to become far more popular years later.
How Can You Buy Artwork?
Today, there are a few different options you have in front of you for investing in art.
1. Auction Houses
Sotheby’s and Christie’s are two of the most well-known art auction houses for fine art in the world. In 2021, Sotheby’s sold $7.3 billion worth in consolidated sales. Christie’s finished the year at $7.1 billion.
Auction houses typically provide information about the artist as well as estimated values for the work.
It is also common to purchase art at local galleries and fairs. Many artists also sell their work on Etsy. The trick is understanding what a good price is.
2. Investment Platforms
An art investment, like any other investment, carries with it risk.
Companies like Masterworks and Yieldstreet help make art investments not only more accessible for smaller investors but also easier to understand. That is because instead of purchasing an entire painting yourself, you either buy shares of artwork or invest in a fund that owns artwork.
With Masterworks, investors can purchase fractional shares of a piece of artwork and share the profits when it is sold.
Masterworks reviews thousands of pieces of art and eventually purchases a small percentage of them. They then allow investors to purchase shares in that piece. After 3-10 years, they sell the artwork and divvy out the profits. You can sell your shares early on the secondary market too.
Masterworks is open to anyone and requires a minimum investment of just $500.
A key advantage to Masterworks is you can spread your investment across many different paintings, allowing for a high-level of diversification. This is not possible when you own a painting outright.
Yieldstreet, on the other hand, allows investors to participate in a fund that includes artwork.
Their most popular fund, the Prism Fund, includes a number of asset types. This fund even pays a quarterly distribution. In addition to the Prism Fund, Yieldstreet also offers funds specific to artwork, though the minimum investment does increase.
3. Digital Art (NFTs)
NFTs, which are growing in popularity, provide another way for investors to get started with art investments.
OpenSea is a top NFT marketplace where people can buy and sell their digital artwork. NFTs have major potential as cryptocurrency continues to grow in popularity. Some estimates put 2021 NFT sales at a whopping $41 billion total.
However, keep in mind that the “digital art” or NFT market is still brand new, so it isn’t considered to be a sound investment opportunity just yet. Many NFTs have collapsed in value in excess of 80% since the peak in 2021. Tread carefully in the NFT market.
The basic premise is to purchase a piece of artwork, hold it for a long time and then sell it for a gain. You won’t get paid while you own the artwork, unfortunately.
To execute this strategy, you must have patience and a working knowledge of the art industry. Depending on the investment method, you may also need a significant amount of capital too.
While investing in art could certainly result in significant gains, it more so serves as a method to diversify your portfolio. Remember, art investing is not a quick method of earning money, rather it is a long game.