Is Art a Good Investment?

Diversifying your portfolio is a great way to mitigate risk and get closer to your financial goals. Alternative investments, or investment vehicles that aren’t listed on the public market, provide exposure to different markets, which can balance out your portfolio and increase your chance of solid returns.

Art is just one example of alternative investments. But is art a good investment? Investing in art comes with its own risk, but with the right approach and research, it has the potential to be a good and fun investment. But before you decide to invest in art, you’ll need a comprehensive understanding of how the art market works and art’s advantages and disadvantages.

How Does the Art Market as an Investment Work?

The art market operates through the buying and selling of art at auction houses, galleries or private sales. In some ways, it operates similarly to the stock market. An investor purchases a piece of art, with the hopes that it’ll appreciate. If it does, the investor may try to sell it for a profit. 

Art appreciation depends on many factors such as the reputation of the artist, rarity, condition and market demand. For example, purchasing a piece by a well-established artist may be a safer investment, since they’re already well-known. The piece will probably be more expensive, too. However, an upcoming artist may sell their work for cheaper, but the investor could get a bigger return on investment if that artist establishes themselves and their work becomes sought after. Most investors and collectors want their pieces in mint condition, so the better quality the art remains, the more valuable it’ll be. Additionally, if it’s the only copy of that piece, it’ll have a higher value than if it was one of many. 

If investors are interested in adding art to their portfolio, they’ll need to work with an art consultant. These art investment professionals can provide invaluable advice on the authenticity of a piece, identify high art quality and give insight into its value. Their guidance can help you pick the best artwork to invest in.

Reasons Why Art is a Good Investment

Investing in art is a different process and experience than other investments, but there are many benefits to adding artwork to your portfolio. Here are a few reasons you may want to invest in art.

Potential for Appreciation in Value 

The goal of investing in art is that the piece will appreciate in value. The art market is competitive, and if investors purchase a rare or sought-after piece of art, they could end up making a sizable return on investment. 

Diversification of Investment Portfolio

Every investment professional will tell you that diversification is the best investment strategy. This way, you can mitigate risk, balance out your allocations and have a better chance of achieving an overall strong return on investments. 

Investing in a Tangible Asset

Art as an investment is unique because you’ll receive a tangible object that will represent your investment. Instead of investing in an abstract share of a company or digital currency, you’ll purchase and take home your artwork. You can display it in your house however you’d like until you decide to sell it.

Potential for Personal Expression and Connection

Art can be so much more than an investment. It gives you the chance to buy pieces that match your style and preference. You can express yourself through the artwork you choose. And the experience of buying and selling art can allow you to meet other collectors with similar interests and network with artists.

Portfolio Diversification Beyond Traditional Markets

Investing in art is a great way to diversify your portfolio since the art market is so different and operates independently of other markets. If the stock market trends downward, you may be able to mitigate that loss through your art investments. What influences traditional markets does not directly impact art, which is a great benefit when diversifying.

Preservation of Wealth

Art is a long-term investment, and it can help protect your wealth in ways other investments can’t. As long as you own your artwork, its value can’t be deducted from your portfolio. It can also be passed down to children and grandchildren to ensure they are well-prepared for the future. 

Enjoyment and Cultural Contribution

Many art collectors see investing in art as a hobby, not just an investment. Going to galleries and auctions, talking to other collectors and the excitement of purchasing a new piece of art is enjoyable. Plus, collectors get the satisfaction that they’re preserving culture and supporting artists.

Potential Risks to Art as a Good Investment 

There’s a lot to be excited about with art investments, but it’s not without risk. Here are a few potential disadvantages to investing in art.

Lack of Liquidity

Art is not a liquid investment. It cannot be sold on a whim to turn into cash. It may take a while to find a private buyer or to work with an auction house to sell. Investors should ensure they balance out their art investments with plenty of liquid holding in their portfolio.

Market Volatility and Risk

The art market is very volatile. Artwork by an extremely popular artist may suddenly decline in value with little to no explanation. Art value heavily depends on market demands, and if the art collecting community suddenly loses interest in an artist or style, value can decrease. This makes art a fairly risky investment.

High Costs and Expenses

Art is expensive, and investors will need thousands to millions of dollars to participate. Art by upcoming artists may be less expensive, but they’re also a risky investment. Blue chip art, or art by renowned artists, sells for millions of dollars. There are also additional investment costs, such as paying for professional advice and transaction costs.

Limited Diversification Within Art

Art is a great way to diversify an overall portfolio, but there are not many opportunities to diversify within art itself. Investors could collect different styles, mediums and artists, but it doesn’t provide the overall diversification necessary to balance out a portfolio. Investors should ensure they hold other types of assets in addition to art. 

Counterfeit and Authenticity Concerns

There are plenty of copies and fakes circulating the art market, and unknowing investors may purchase a piece for a large sum, then find out it’s a fake. Investors must be extremely careful, conduct their due diligence and work with art consultants before purchasing to prevent purchasing a fake.

Knowledge and Expertise Required 

A fairly high-level knowledge of the art world is necessary before investing. Investors will need to familiarize themself with how the market works, relevant artists, styles and the way art is valued. And even the most knowledgeable enthusiasts should work with an art consultant for advice.

Steps to Determine if Art is a Good Investment

So is art a good investment? Whether art is a good addition to a portfolio varies from investor to investor. Here are some ways to determine if art is a smart investment.

Step 1: Evaluate the Current Art Market

The art market is always changing, and you’ll want to do some research into the current state of the market before beginning to invest. Check out current trends, where there’s demand and how much art is being sold for. Investors will also want to familiarize themselves with key artists in the market and research the value of their artwork. 

Step 2: Assess Art Appreciation Potential

After purchasing artwork, the goal is that it’ll rise in value. To determine the potential for gains, research past and current art appreciation trends. Is art appreciating or depreciating over time? What style or artist has the greatest appreciation? Also, consider how the rarity and market demand affect art appreciation.

Step 3: Examine the Quality and Authenticity

When considering artwork as a potential purchase, you’ll want to confirm its quality and authenticity. Examine whether the artwork demonstrates the artist’s technical skill and merit and has desirable aesthetic appeal. Investors will also want to check the piece’s provenance, or record of ownership, to ensure it’s not a counterfeit piece. An art consultant can also advise whether it’s a good investment.

Step 4: Assess Your Diversification Strategy

Before stepping into the art market, you’ll need to assess your overall investment portfolio and consider whether art is a good diversification strategy. Remember that art is an illiquid investment, so it’ll need to be balanced out with more liquid assets in other markets to mitigate risk. Discuss the potential of investing in art with an investment professional to know how much of your portfolio you can safely allocate to art.

Step 5: Understand Art Investment Costs and Liquidity Issues

Investing in art will cost more than just purchasing the artwork. You’ll also need to pay for insurance, proper storage and professional advice. These investment costs will reduce overall profit. Artwork also cannot be quickly turned into cash. Sales can take a lot of time and effort and may require hiring an appraiser. If you sell through an auction, it will take a percentage of the sale as a transaction fee.

Step 6: Seek Advice from Art Investment Professionals 

It’s a good idea to consult with art investment professionals before stepping into the world of art. They can give insight into the state of the market, how to identify strong investments and current trends and relevant artists. Their advice is invaluable, whether you’re new to the art or an art enthusiast.

Step 7: Consider Your Personal Preferences

Your taste in art matters. Of course, you’ll want to do your due diligence and not purchase art on a whim, but you should still trust your instincts. If there’s a piece of artwork that speaks to you, then it may speak to other people too. Art investing is heavily determined by personal interest and what other collectors are interested in. 

Combine Passion With Investments

If you’re enthusiastic about art and looking for a way to diversify your portfolio away from traditional markets, artwork may be a good addition. But before you invest, ensure you familiarize yourself with the market, research potential risks and seek guidance from an art professional. If investors do the proper due diligence, art can be a fun, satisfying investment that also has the potential for achieving returns.

Frequently Asked Questions