Appreciating fine art might be difficult to wrap your head around, but it’s easier than ever before to invest in it. Here’s how you can get started, even on a budget.
“Invest in what you know” is a rule of thumb that most individuals follow when growing their wealth. After all, purchasing a company’s shares without knowing its business model or how the industry is performing is more gambling than investing. Believe it or not, this principle applies to newfangled alternative investments like fine art or luxury timepieces too.
That’s because most folks who purchase alternative investments are hobbyists first and investors second. They have a genuine interest in their chosen asset and any appreciation in value across their collection is more of a bonus rather than a must-have. However, that doesn’t mean you can’t join in the fun too.
Investing in art adds another dimension to your portfolio and these days, it’s more than just stashing away a ton of paintings for years before selling them off. Find out how you can take advantage of this highly aesthetic asset class and which are the best platforms out there to help you get started.
- Why is art a good investment?
- How do I start investing in art?
- What are the best art investment platforms out there?
- What are the risks of investing in art?
Why is art a good investment?
Investing in art is akin to having bonds in your portfolio, only much more pleasing to look at. It literally withstands the test of time, with record-breaking sales figures only achieved decades or even centuries after the piece of art was created. The most famous example would be Leonardo Da Vinci’s Salvador Mundi, which sold for US$450.3 million at a 2017 auction.
Turn the clock back to 1958 and this very painting would have been yours for a mere £45, which is roughly US$1,237 today when adjusted for inflation. It’s a gross understatement to say that this artwork generated a good ROI as it exchanged hands on five occasions. This wasn’t a fluke either, with numerous pieces of art selling for well over US$50 million since the 1980s.
Alongside an exceptional ROI, a report from Citibank showed that art has a low correlation with other asset classes. This means that the price of art is largely unaffected by how stocks, bonds, or even real estate performs. When you add art to a multi-asset portfolio, you’re improving diversification while owning something you’d enjoy looking at frequently. What’s not to like?
How do I start investing in art?
Unfortunately, the first step to investing in art is the toughest as you need to build up your expertise. This is akin to the due diligence you’d perform for any other asset class but more enlightening. It might be time-consuming, but getting an overview of art history and the various styles under your belt is paramount. Price trends are important to note as well.
Then, pay an art gallery or fair a visit, whether physically or virtually. This gives you an opportunity to determine which styles and artists you’re fond of and the chance to speak with curators and specialists. Their advice is useful if you’re just starting out and overwhelmed by the sheer number of pieces on display. However, do ensure that the gallery is a reputable one.
Before you purchase a piece of art, keep in mind that there are differences between an original work and a print. Although a print is much cheaper than the original - even a limited edition one - don’t expect its value to appreciate by much, if at all. Then, determine whether you’d like to purchase a work from an established artist or a younger one that shows promise.
What are the best art investment platforms out there?
Now that you’re equipped with sufficient knowledge, it’s time to make your first purchase. There is a multitude of platforms where you can start your investing journey and the following are just several to get you started.
According to German market research firm Statista, Sotheby’s and Christie’s were by far the best-performing auction houses in 2020. Combined, they sold over 26,000 lots of fine art that year and generated a revenue of US$4.7 billion. The other auction houses were light years away from the top dogs in the business.
Therefore, these two houses would be the best places to start if you’d like to dip your toes into the auctioning waters. Neither has a salesroom in Singapore, but they’ve warmed up to online auctions as COVID-19 terrorised the world throughout 2020. As you’d expect from the market leaders, multiple online auctions are held every month, so don’t worry about missing out.
Should you decide to participate in an online auction, take full advantage of the services that are on offer. Pose as many questions as you’d like to the houses’ staff members via email or phone call after scrutinising the condition report and various details of your preferred lot(s). Take comfort in the fact that fellow bidders can’t eavesdrop on you.
Fractional ownership platforms
If you aren’t starting out with a large budget or prefer to consistently invest a smaller sum every month, consider giving fractional ownership platforms a shot. The moniker might sound confusing, but it’s a concept that you’re probably familiar with already, especially if you have ever invested in the stock market.
You purchase shares of various artworks through these platforms. Profits are then divided among shareholders when these pieces are finally sold, which is akin to capital gains from selling a company’s stocks. And yes, all profits do go to you if you purchase an entire piece, minus the platform’s fees and charges of course.
Fractional ownership platform Masterworks even goes to the extent of interviewing potential investors before approving their application. Another platform, dubbed Maecenas, utilises blockchain technology (Ethereum, if you’re wondering) to tokenise artwork. This reportedly allows for easier trading and lower fees for both buyers and sellers.
Online art marketplaces
As mentioned earlier, local art fairs and galleries are fantastic ways for you to seek out the expert advice of specialists and curators. Although you can purchase artwork from these venues, the selection is more thematic than all-encompassing. This is where online marketplaces that specifically peddle art come into the equation.
You’re granted exposure to emerging artists from across the globe, which is a huge bonus considering Singapore’s size. Platforms like ARTPIQ are highly discerning too, requiring artists to undergo a three-step application procedure before they can start selling. Another carrot that’s dangled would be lower commission fees compared to physical galleries.
Online art marketplaces usually offer advisory services in addition to being an e-commerce platform. The best part? This is often complimentary, like what physical art galleries and fairs are offering. Load up your questions and fire away, lest you end up doom-scrolling through the many masterpieces on the platforms.
What are the risks of investing in art?
Perhaps the biggest risk of investing in art would be its lack of liquidity. Even Jean-Michel Basquiat’s most valuable paintings needed 30-odd years before selling for approximately US$100 million each across private sales and auctions. Contrast this with bonds, which have a guaranteed payout upon maturity at least.
Another risk of investing in art would be maintenance costs. If you aren’t keen on owning an artwork’s shares and would rather have the entire piece to yourself, this is what you need to deal with. Not only do you need to keep the artwork in tip-top shape, you also have to ensure that authenticity records do not get misplaced. Then there’s the cost of insuring it as well.
Finally, there’s the fickleness of the art market. Like luxury timepieces, the art world is subject to changing collector preferences as the years go by. No one knows the pain more than Vincent van Gogh, whose paintings only skyrocketed in value well after he passed away. Collectors during the era he lived in weren’t exactly partial to him nor his paintings, to say the least.
Investing in art might appear daunting, especially if you were brought up on a steady diet of the reptilian Michelangelo rather than the Renaissance one. However, let it also be known that aesthetic sense can be developed over time. Additionally, your due diligence would be more important in this case since you’re looking for investment-grade artworks first and foremost.
If you have the capital and time to spare, investing in art helps round out a portfolio and hedge against market risk. This is akin to other alternative investments that don’t correlate well with traditional asset classes. And like other alternative investments, it’s more than just figures and charts when you put your money into art.
It might take time for your holdings to realise their potential, but at least you have something pleasing to look at in the meantime.
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