Appreciating fine art can be hard to understand, but investing in it is easier than ever. Here’s how you can get started, even on a limited budget.
âInvest in what you knowâ is a rule of thumb that most people follow when increasing their wealth. After all, buying a company’s stock without knowing its business model or industry performance is more of a game than an investment. Believe it or not, this principle also applies to the latest generation alternative investments like fine art or luxury watches.
This is because most of the people who buy alternative investments are first amateurs and then investors. They have a genuine interest in the asset they have chosen and any appreciation in the value of their collection is more of a bonus than a must. However, that doesn’t mean you can’t have fun too.
Investing in art adds another dimension to your portfolio and these days it’s more than just setting aside a ton of paintings for years before selling them. Find out how to take advantage of this highly aesthetic asset class and what are the best platforms to get you started.
Why is art a good investment?
Investing in art is akin to having bonds in your portfolio, but much more pleasing to the eye. It literally stands the test of time, with record sales figures only decades, if not centuries, after the artwork was created. The most famous example would be Leonardo da Vinci’s Salvador Mundi, which sold for US $ 450.3 million (S $ 611 million) at an auction in 2017.
Go back in time to 1958 and that same painting would have been yours for just Â£ 45 (S $ 84), which is around US $ 1,237 today after adjusting for inflation. It’s an understatement to say that this work of art generated a good ROI as it traded hands five times. It was no coincidence either, with many works of art selling for over $ 50 million since the 1980s.
Along with 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 the performance of stocks, bonds or even real estate. When you add art to a multi-asset portfolio, you improve diversification while owning something that you would like to watch frequently. What not to like?
How to start investing in art?
Unfortunately, the first step to investing in art is the most difficult because you have to develop your expertise. It’s akin to the due diligence you would do for any other asset class, but more informative. It can take time, but having an insight into the history of art and the different styles under your belt is essential. Also important to note are price trends.
Then visit an art gallery or fair, either physically or virtually. This gives you the opportunity to determine the styles and artists you like and the chance to speak with curators and specialists. Their advice is useful if you are just starting out and overwhelmed by the sheer number of exhibits on display. However, make sure the gallery is reputable.
Before purchasing any artwork, keep in mind that there are some differences between an original artwork and a print. While a print is much cheaper than the original – even a limited edition – don’t expect its value to appreciate much, if at all. Next, determine whether you want to purchase work from an established artist or a young one who is promising.
What are the best art investment platforms?
Now that you have enough knowledge, it’s time to make your first purchase. There are tons of platforms you can start your investing journey on and the following are just a few 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. Together they sold over 26,000 lots of works of art that year and generated sales of $ 4.7 billion. The other auction houses were light years away from the best dogs in the business.
Therefore, these two homes would be the best places to start if you want to dip your toes in the auction waters. Neither has an auction house in Singapore, but they have gotten used to online auctions as Covid-19 has terrorized the world throughout 2020. As you might expect from the By market leaders, there are multiple online auctions taking place each month, so don’t worry. missing.
If you decide to participate in an online auction, take full advantage of the services offered. Ask as many questions as you want to the house staff by email or phone after reviewing the condition report and various details of your favorite lot (s). Rest assured that other bidders cannot spy on you.
Fractional ownership platforms
If you’re not starting out on a large budget or prefer to consistently invest a smaller amount each month, consider giving fractional ownership platforms a chance. The nickname might sound confusing, but it’s a concept you’re probably already familiar with, especially if you’ve been in the stock market before.
You buy shares of various works of art through these platforms. The profits are then distributed among the shareholders when those coins are finally sold, which is akin to capital gains from the sale of shares in a company. And yes, all of the profit goes to you if you buy an entire coin, minus the platform fees and charges of course.
READ ALSO: Digital-Only Artworks Bring Almost $ 94 Million At Christie’s
The Fractional Ownership platform Masterworks even goes so far as to interview potential investors before approving their application. Another platform, dubbed Maecenas, uses blockchain technology (Ethereum, if you are wondering) to symbolize works of art. This would facilitate trade and reduce costs for buyers and sellers.
Online art markets
As mentioned earlier, local art fairs and galleries are fantastic ways for you to seek expert advice from specialists and curators. While you can purchase artwork from these places, the selection is more thematic than comprehensive. This is where online marketplaces that specifically sell art come in.
You get exposure to emerging artists from all over the world, which is a huge advantage considering the size of Singapore. Platforms like ARTPIQ are also very demanding, forcing artists to go through a three-step application process before they can start selling. Another outstanding carrot would be lower commission fees than physical galleries.
Online art marketplaces generally offer consulting services in addition to being an e-commerce platform. The best part? It is often complementary, like what physical art galleries and fairs offer. Load up your questions and shoot, lest you end up scrolling through the many masterpieces on the platforms.
What are the risks of investing in art?
Perhaps the greatest risk of investing in art would be its lack of liquidity. Even Jean-Michel Basquiat’s most valuable paintings took around 30 years to sell for around US $ 100 million each in private sales and auctions. Compare that with bonds, which have a guaranteed payment at least at maturity.
Another risk of investing in art would be the maintenance costs. If you don’t want to own the parts of a work of art and prefer to have the entire room to yourself, this is what you need to take care of. Not only do you have to keep the artwork in pristine condition, but you also need to make sure that the authenticity records are not lost. Then there is also the cost of insurance.
Finally, there is the fickleness of the art market. Like luxury watches, the art world is subject to the changing preferences of collectors over the years. No one knows pain better than Vincent van Gogh, whose paintings only rose in value long after his death. Collectors of the time he lived weren’t really fond of him or his paintings, to say the least.
Investing in art can seem daunting, especially if you were raised on a regular Michelangelo reptilian diet rather than the Renaissance one. However, also be aware that the aesthetic sense can develop over time. Also, your due diligence would be more important in this case as you are looking for top quality artwork above all else.
If you have the capital and the time to spare, investing in art can complement a portfolio and protect against market risk. It’s akin to other alternative investments that don’t fit well with traditional asset classes. And like other alternative investments, it’s more than numbers and charts when you invest your money in art.
It may take a while for your farms to realize their potential, but at least you’ve got something nice to watch while you wait.
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This article first appeared in SingSaver.com.sg.