January 11, 2023
Most retail shareholders probably can’t afford to purchase a multimillion dollar art piece created by a contemporary master, but there are ways to invest in valuable works of art. As an individual investor, your net worth most likely doesn’t allow you to purchase a Banksy or Basquiat, but several new platforms allow you to fractionally own great art work and collectibles.
As an investor, why should you care? The 2022 Global Art Market Report from Art Basel and USB shows that the global art market reached $65.1 billion in aggregate sales in 2021, a 21% rise from the previous year. Investors looking for stability, resiliency and encouraging earnings, might find investing in fine art and collectibles a good fit.
Retail investors can choose from several different entry points to begin investing in art.
Platforms like Masterworks and Public allow you to buy fractional shares of artwork. As a fractional owner, it is important to note that you will not own a Picasso, but you will own fractional shares of valuable works of art. Because the value of the artwork is not linked to the stock market’s performance, individual investors can find diversification and stability during periods that are more temperamental. Art originally was limited to more traditional collectible forms like paintings and sculpture, but the platform Public has grown to expand its investable art to include more modern forms: streetwear fashion, rare sneakers and vintage graphic novels and comics.
When the platform sells the artwork, each investor experiences the profit or loss. Investors are told by these platforms that they can expect a profit between 3 and 7 years, with a goal that the art and other items will appreciate between 10% and 25%. Worth noting, according to the Masterworks art index, is that contemporary art prices have outperformed the S&P 500 by 131% during the period 1995-2021. Of course, there is no sure thing when it comes to investing, so retail shareholders should make sure to research any investment carefully or consult with their investment advisor. Be sure to do your due diligence prior to taking the leap into art investing and make sure you understand the platform’s fees/commissions and the funds’ performance history.
YieldStreet is an entry point that gives access to mid-career and “blue chip” art and artists. Akin to blue-chip stocks, blue-chip art is a term used to describe art and artists that have steadily increased in value. Though not a traditional art term, blue chip, has come to mean that the art has provided stable increasing growth in returns. The platforms give investors access to art specific funds and provide investment counsel through automated investing services, or a bot advisor. Teams from these providers buy and secure the works and collectibles they believe will perform well if sold in a time period that can range from 8 months to 10 years. At that time fees are deducted from the sale price and investors receive their share of the profits.
Another way into the art market is through NFTs (non-fungible tokens). As digital and verifiable works of art, NFTs have become popular, though some of that popularity has cooled because of problems with cryptocurrency, which uses the same blockchain verification as NFTs. NFTs are attractive to investors because of their ID coding and metadata, which makes the works unique and available only to the owner.
Supported by a blockchain network, NFT investors can easily buy and sell these digital works of art to other investors. They are also popular because of their portability. Investors can collect them and keep them in a central place where they can enjoy them digitally. Through NFT marketplaces, individual investors can purchase art NFTs from artists or other investors using cryptocurrency. OpenSea is one of the largest and best-known NFT marketplaces.
One of the things that makes art investing interesting and different is that it is a completely unique market based on the passion people have for the art and collectibles. It is a long-term form of investing that appeals to individual investors who have a love of art and don’t have a problem waiting a long time for an investment to grow. The value builds over time and selling your shares takes some planning. If you are interested in an investment that is engaging and interesting investing in art may be the alternative that suits you.
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