Art is an alien asset class for most investors. Many people who are uninformed may consider art to be a speculative investment. However, they would be surprised at the amount of evidence to the contrary. Before going all in, or ignoring art as an investment altogether, you should familiarize yourself with the art investment basics below.
Achieving Good Returns on Art
Statistics reveal an average annual return of 10 percent over the past four decades for the index of art sales, used by art advisors to sell art funds. Other research reveals that this figure stood at 6.5 percent between 1972 and 2010.
Art investors have to take into consideration the amount they can afford to invest in art. It is important to not make excessive investments. Such actions can lead to disproportionately high risks for investors. However, to see any sizable amount in returns from these investments, most people need to invest at least five figures.
If you cannot afford that initial investment, you should probably consider another alternative. You should also consider the fact that not every piece of art will appreciate in value.
Alternative Modes of Investment
In 2017, the average price for a piece of contemporary art was $27,600. For most people, this is a steep price that calls for a significant amount of cost-benefit analysis. Individuals who are new to investing in the art world may consider alternatives that cost less money. They may purchase art from local galleries or invest in art made by students. Such pieces of art can still rise in value in the future, providing considerable profit margins for their investors.
Investors may also use an art mutual fund if they find themselves struggling against high barriers to entry in the art market. Many art mutual funds allow investors to purchase shares in art funds for as little as $10,000.
While art presents good prospects for positive returns, investors must ensure that they keep abreast of factors that affect political and economic climates. Art is susceptible to shocks caused by swings in political environments. The price of art can be significantly affected by artwork pricing and trading.
The rise in global wealth has contributed to the growth of the art auction market over the years. Between 2002 and 2013, sales in the auction market for at doubled – as low-interest rates encouraged more expenditure.
Learning Art Investment Basics
Auction house experts usually provide accurate estimates of prices. Despite this, it is not uncommon for them to overvalue pieces of art. Investors need to ensure that they carry out extensive research on the valuations provided by auction house experts. It helps to consult with more than one expert on art to gain deeper insights on pricing.
To do this, you need to perform plenty of research. You’ll need to learn what has performed well in the past and what the trends typically are. For instance, in 2010, art was the most popular asset, increasing by 25 percent over the year. In 2007, the value of the art market increased by 48 percent while in 2008, the value of the art market increased by 47 percent.
Spotting Trends in the Market
Eventually, you’ll be able to spot specific trends that correlate to other markets as well. There exists a notable correlation between the value of the real estate market and the value of the art market. Many people who purchase luxury real estate also choose to purchase art for their houses.
Increasingly, the internet is opening up streams of revenue for the art market as more people around the world are able to discover new artworks in different regions. The internet proves to be a fertile environment for purchases by Millenials. Around 34 percent of Millennials discover art on social media, and an increasing number of them are purchasing art online.
That’s where programs such as Masterworks come in. You can take a look at the trends within the market and get a good idea of where you might want to put your money in the art market. Once you’ve become familiar with the art investment basics, you can make an educated decision based on what you know.