Guide to Art as an Investment
Investing in art can add diversification to a portfolio if you’re ready to move beyond traditional stocks and bonds. Alternative investments like art can offer above-average returns and offset some of the impacts of market volatility.
Art investment has traditionally had a higher barrier to entry, as individual works of art may carry five and six-figure prices (or more). In addition, there are a number of risk factors when investing in art, including lack of liquidity and lack of transparency around pricing.
However, new ways to invest in art have emerged that make it a more accessible asset class to a broader range of investors.
What Is Art Investing?
Art investing refers to the purchase of works of art to sell them at a profit at a later date. Apart from owning individual artworks (which can be expensive and difficult to maintain), there are a range of new ways to invest in art, including:
• Fractional share investing through online art platforms
• Art funds
• Art stocks
• Non-fungible tokens (NFTs)
Buying art as an investment doesn’t require you to have an advanced art degree or professional background in the art world. You will, however, need to be willing to spend some time learning about this alternative investment to understand how the market works.1
How Art Investing Works
Investing in art requires a certain mindset, and doing your due diligence to size up what constitutes the best opportunities for you, depending on your goals.
Art, like other alternative investments, may require a much longer holding period for you to realize returns, which contributes to the lack of liquidity in this space. It may be challenging to find a buyer if the artwork or the artist is not in demand.
It’s also important to understand traditional art ownership, along with some of the newer investment vehicles.
Individual Works
Similar to investing in a traditional asset class like stocks, investing in individual works requires knowing some fundamentals: a history of the artist, their status (e.g., are they in demand?), the relevance of a given work, and a sense of whether it’s overvalued or undervalued.
The risks of choosing individual works include the possibility of fraud, the cost of maintaining the work (e.g., storage and insurance), and hidden charges, similar to investment fees (e.g., commissions and other costs). Given the fragility of most art, there is also the risk of physical damage or total loss.
Fractional Shares of Art
Owing to the high cost of owning blue-chip works of art (as well as other highly valued works) it’s now possible to buy fractional shares of art, similar to investing in fractional shares of stock.
There are a number of new platforms that sell fractional art shares, and each may have its own system and process (more below).
The risk of buying fractional shares of art is that, as with any investment, there are no guarantees of a return.
Art Funds
Similar to traditional mutual funds and ETFs, an art fund is a type of pooled investment fund. But unlike conventional equity funds, say, that hold many different stocks, art funds often hold only a handful of works. Investors who buy shares of the fund are buying into the collective, potential value of those works.
Art funds are generally structured as closed-end funds, but with a twist: investors typically contribute their capital over a period of three to five years, often with no returns for another specified time period (terms vary).
These funds are highly illiquid, and (in addition to the unpredictability of the art market itself) there are substantial risks to locking up your capital for what could be years, for an unspecified return upon redemption.
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Types of Artists
There are generally three types of artists you may invest in:
• Blue-chip artists: Blue-chip artists are individuals everyone has most likely heard of. Names like Van Gogh, Picasso, and Banksy are familiar to people both within and outside the art world.
Works from these artists typically carry the least risk because there’s always someone willing to buy them. The downside is that the average investor may not have sufficient capital to purchase individual blue-chip artworks since they can cost hundreds of thousands, if not millions, of dollars.
• Established artists: Established artists are known artists whose works typically command higher prices, but have not yet reached blue-chip status. Investing in art from established artists can offer solid return potential with a moderate degree of risk.
• Emerging artists: Emerging artists present the greatest risk since they’re still up and coming. However, you might be able to generate a sizable profit from investing in their art if their career takes off.3
Risks and Returns of Investing in Art
Investing in alternatives such as art carries risks that are similar to other alternative investments, like commodities, real estate, collectibles, and other assets. Investors who are willing to accept a higher degree of risk, however, may enjoy a substantial upside.
Here’s a side-by-side look at the pros and cons of investing in art.
| Rewards | Risks |
|---|---|
| Art investment offers the potential for higher returns.
Art can add diversification to a portfolio, allowing you to better manage market volatility and the impacts of inflation. Investing in art can help you grow wealth while allowing you to support your favorite artists and contribute something to the art community. A significant amount of capital is not necessarily required to begin investing in art. Interest in art has persisted for hundreds of years, making it a reliable investment option for the longer term. |
An investment in art is not guaranteed to be profitable.
Certain types of art investments offer limited liquidity, which could make it difficult to exit quickly. Valuing artworks is often highly subjective, which could make it difficult for a beginning investor to determine what a piece is truly worth. Owning individual artworks may entail paying maintenance and storage fees, as well as insurance. Forgeries and fakes are a real part of the art world investors must contend with. |
If you’re trying to decide whether to invest in art, consider your personal risk tolerance and investment horizon.
Dive deeper: Why Invest in Alternative Investments?
5 Ways to Start Investing in Art
When deciding how to invest in art, it’s important to remember that you’re not locked into any single path. You might choose multiple investment strategies to build out your art portfolio.
With that in mind, here are some of the best ways for beginners to start investing.
1. Fractional Art Shares
Fractional art share investing is a relatively new phenomenon. It works like this:
• You join an art investment marketplace.
• The marketplace vets works of art and lists them for investment.
• You buy fractional shares of individual works of art.
• When the artwork sells you get a piece of the profits.
Typically, you invest a minimum amount to buy a certain number of shares of a work you believe will appreciate. So you might hold 30 shares of a Basquiat piece and 20 shares of a Warhol.
The platform purchases and maintains the art; you don’t actually see or handle it. If it appreciates within a set period of time, the piece will be sold and profits will be distributed proportionately to each investor’s ownership amount.
The downside is that you might need $10,000 or more to get started on a fractional share marketplace. Additionally, you don’t get to choose when the artwork sells — that’s determined by the platform.
While trading fractional shares isn’t available on public exchanges yet, some fractional art platforms operate a secondary market whereby shareholders can execute trades.
2. Art Funds
Art investment funds are typically privately managed funds that offer investors exposure to multiple works. In that sense, they’re similar to traditional mutual funds.
Some art funds are index funds, meaning they seek to replicate the returns of an art market index, similar to a traditional index like the S&P 500. Other art funds are equity funds that try to beat the market.
If you’re considering art funds, check the minimum investment to get started. Certain funds may be limited to accredited investors, or require you to have $20,000 or more to purchase shares.
Also, consider the fund’s expense ratio, which determines your cost of owning it yearly.
3. Art Stocks
Art stocks offer a slightly different way to invest in art. Rather than funding individual artworks, you might invest in publicly traded companies that:
• Manufacture art supplies
• Handle art restoration
• Sell art insurance
• Produce art prints
• Create digital art software programs or applications
• Create software or apps used by museums
This type of art investment is more tangential, but may be worth a look if you’re interested in the art world in its entirety, not just individual paintings or sculptures.
Similar to investing in art funds, consider the minimum investment required to buy shares. And study the stock’s past performance and risks to fully understand what you’re buying.
4. Non-Fungible Tokens (NFTs)
Non-fungible tokens or NFTs are digitized versions of various works, including art. NFTs and their owners are recorded on the blockchain so they can’t be duplicated or reproduced.
If you’re weighing NFTs, carefully consider the risks as well as the amount you plan to invest. A good rule of thumb for this type of investment may be to limit yourself only to what you can afford to lose.
5. Individual Works of Art
You might invest in art by purchasing individual pieces. Again, you may choose from blue-chip, established, or emerging artists.
The advantage is that you can decide when to sell and you’re not necessarily locked in for decades. Art flipping, a controversial practice in art circles, involves buying works of art and selling them quickly for a profit. It’s similar to house flipping, another type of alternative investment.
If you’re interested in buying individual pieces, you might buy them from:
• Galleries
• Private dealers
• Art auctions
Purchasing directly from the artist may also be an option, though this may require some negotiation to decide on a price.
Before buying a piece of art, consider the ongoing costs of ownership. For example, you may need to pay to have it professionally stored to avoid damage to the work. And depending on its value you may need to buy insurance for your investment.
The Takeaway
Art and other alternative investments can help you create a well-rounded portfolio. The important thing to remember is that art is an alternative investment, with specific risks and potential advantages. While you could make a profit with art investments, you could also lose money, so it’s wise to assess the risks before wading in.
Ready to expand your portfolio's growth potential? Alternative investments, traditionally available to high-net-worth individuals, are accessible to everyday investors on SoFi's easy-to-use platform. Investments in commodities, real estate, venture capital, and more are now within reach. Alternative investments can be high risk, so it's important to consider your portfolio goals and risk tolerance to determine if they're right for you.
FAQ
Is art a good investment?
Art can be a good investment for people who have sufficient means to invest and are comfortable with the various risks. It’s possible to realize higher returns from art investments compared to stocks or bonds, but it typically requires a longer holding period. Reduced liquidity can make art a less attractive investment for people who are looking for near-term gains.
How do you start investing in art?
You can start investing in art by deciding which strategy you’d like to pursue. Do you like the idea of owning fractional shares, or share in an art fund? Would you prefer to buy stock in art-related companies? Or do you feel confident in your taste, and budget, as a collector to purchase individual works? Be sure to vet your all-in costs, how long your money might be locked up, and whether there are risks with one choice versus another.
Why do millionaires invest in art?
Millionaires may invest in art for different reasons, ranging from a desire for higher returns to a passion for art as a collectible. As alternative investments go, art can be profitable, though it does take some knowledge of the market to assess which pieces are most likely to see the greatest appreciation.
Photo credit: iStock/Antonio_Diaz
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