Everything You Need To Know About Investing In Fine Art
/If you are interested in investing in non-traditional assets and are passionate about enjoying the ownership of your assets, then passion investing might be of interest to you. There are a few popular passion investing choices, like fine art, classic cars, watches, antiques, stamps, and coins. These alternative investment options are a perfect fit for anyone who wants to enjoy the ownership of these assets while earning a return from them.
However, unlike traditional and alternative investments, fine art is aesthetically pleasing. When you invest in fine art, not only can it be enjoyed by you but it might also increase in value over time while it is in your possession. If you are passionate about fine art and are interested in investing in fine art, then here is everything you need to know about investing in fine art.
Photo by Dazzle Jam from Pexels
Why invest in fine art?
If you invest in more than one asset class and category, you can reduce the risk of your investment portfolio. An investment portfolio should be diversified, which means it should contain a wide selection of different traditional assets, such as stocks, bonds, and cash, and alternative assets such as fine art, antiques, and more.
When you have a diversified portfolio, you can minimize your overall portfolio risks in the event of an economic, social, or political crisis, as not all assets decline in value or appreciate in value at the same time. For example, if you lose in stocks but gain in fine art and bonds, you can minimize the loss of your portfolio.
If you invest in only one or two types of assets, your investments are at greater risk of potential losses in the event of a crisis like an economic recession or a pandemic. With a diversified portfolio, if you lose in one area, you may gain in other areas to minimize your overall risks while benefiting from your investments in the long run.
Fine art investing can help diversify your portfolio, as the value of fine art does not fall at the same time as other traditional asset classes such as stocks and bonds. So by investing in fine art you can minimize the potential loss of your portfolio when the stock market falls.
How much should you invest in fine art?
The proportion of your portfolio that should contain fine art depends on your individual investing goals, risk tolerance level, and the size of your portfolio. Generally speaking, though, investing a single-digit percentage (2–8%)of your portfolio in fine art is reasonable, depending on your individual circumstances. Remember that your portfolio should contain a range of different asset classes.
Understand the value of fine art
The value of fine art is largely unpredictable. However, if you spend on fine art that is the work of an artist who has won prestigious awards or fellowships, has held academic positions, or whose work has been displayed at notable museums, galleries, and art institutions then you can safely assume there may be a return on your investment.
The value of an expensive or a well-known piece of artwork by a well-known or an upcoming artist will increase over time. If you want to buy a piece of fine artwork by an artist, it pays to learn about the artist's life, current events, and current demand in the art market.
Returns you can expect from investing in fine art
Fine art investments have shown positive returns over the long term, you can expect returns by investing in fine art. Volatility in art markets is generally lower than when compared to equity markets so when you are investing in fine art, you are investing in a less volatile market.
Unlike stock shares, fine art investing is not going to produce an income, though. But if you want to diversify your investments then investing in fine art can make sense.
Consider investing in shares of fine art
If you want to own a piece of artwork without a significant investment, then you may consider investing in shares of fine art. Masterworks is a well-known platform for art enthusiasts who want to buy and sell shares of fine art. Masterworks buys the best art at the best price and then sells shares to anyone interested to invest in fine art. Masterworks holds the artwork for 3-10 years.
Before investing in Masterworks, consider their fees which include a 1.5% annual management fee and 20% of the profit if your shares increase in value. If you are interested in investing in shares of fine art, Masterworks is an option for you. But remember that it could take years to realize any returns on your investment so consider this as a long-term strategy.
One of the main advantages of investing in fine art via Masterworks is that you do not have to spend a lot of money to buy shares. You can invest in fine art through Masterworks with as little as $20.
What if you can’t (yet!) afford an original piece of artwork?
When you are thinking about investing in fine art, you will soon realize the cost of some original pieces may be out of your range.
An affordable option to buy a piece of artwork from a well-known artist is to buy a print of the original work. Prints can be made from a piece of artwork and they are usually often signed and numbered (if the artist sells a limited edition of the work) by the artist. So if you are new to fine art investing and you cannot yet afford to buy an original piece of artwork from a famous artist, consider an edition.
Consider the pros and cons of investing in fine art
You should carefully weigh up the pros and cons associated with investing in fine art before investing in this market. As with many investments, there are advantages and disadvantages to fine art investing.
One of the positive aspects of investing in fine art is the fact that you can sometimes enjoy the ownership of the piece of artwork you buy, depending on your fine art investment strategy. You can enjoy the ownership of the artwork or a broker can store and maintain the art on your behalf.
Alternative investments such as fine art are designed to limit volatility and downside risk in your investment portfolio. Most physical alternative assets, like fine art, rarely lose value over the long run.
One of the biggest downsides of fine art investing is that artwork is illiquid, so if you want or need to sell artwork immediately, you will be unable to do so. Even if you are able to sell artwork in a hurry, it will probably come with associated costs. Not all artwork will appreciate in value over time, so you could lose money if the value of your investments goes down.
Tips to consider for investing in fine art
Fine art investing should only be considered as a long-term investment strategy. If you hold onto your art for the long term, say, about ten years or more, you will improve your odds of achieving a reasonable return on your investment in fine art.
Only buy a piece of art that you appreciate and love and that has the potential to appreciate in value.
Learn about art by reading articles online or by visiting art galleries, museums, and art institutions so you can learn more about the art market, trends, and upcoming artists.
Consider buying a limited edition print of an original piece of artwork that you love.
If you buy a piece of artwork that you think will appreciate in value, make sure to look after it carefully so that it is not damaged.
It might be worth working with a financial planner to see if your portfolio is appropriate for fine art investing before you invest in this type of asset.
In Conclusion
Fine art investing is a great way to enjoy the ownership of what you love while maybe making money over time, too. If you are interested in fine art investing but need guidance and advice before investing in fine art, it is best to work with a financial planner or an art consultant who is knowledgeable about this type of investment.
Disclaimer: the content presented in this article is for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.
