How to make your first investment in art
There are several ways to invest in art, each with varying degrees of risk and reward. You can easily find art to purchase at galleries and auction houses (both physical and online) or at local art fairs.
Online magazines and social media channels, such as Meta Platforms‘ (META +0.58%) Instagram, can help you discover artists you like, and you can buy works directly from artists’ websites.
Or you might dive into the world of non-fungible tokens (NFTs), which can represent ownership of digital art.
High risk and high price tag
Buying original works at auctions, galleries, and art fairs can come with the highest price tag and the highest amount of risk.
You can buy works by an up-and-coming artist, hoping you’ve found the next Banksy. A one-of-a-kind painting or sculpture could someday be worth much more than what you paid, or you might have trouble reselling it.
Low risk and low price tag
Instead of buying an original, you could opt for a print of an original painting or drawing. Many artists and galleries will sell limited-edition prints of some works at a set retail price on their website.
A high-quality, limited-edition print can be very valuable and costs a fraction of the price of the original. But since prints aren’t usually unique, they don’t increase in value as much as the originals.
Low risk and high price tag
You can buy pieces by blue chip artists, such as Andy Warhol, which generally hold their value better but offer less capital appreciation. Blue chip artists are those whose works have the most stable value and are not subject to fashions and speculation.
Many first-time investors can’t afford to buy a blue chip painting or sculpture. However, several funds enable investors to buy shares in a holding company that will buy a blue chip piece of art (more on that below).
Importantly, you should buy works that make you happy. If you invest $25,000 in a painting you think is ugly just because you expect its value to rise, you’re missing out on the fun part of investing in art versus other asset classes.
Other ways to invest in art
It’s still possible to invest in artwork without taking possession of the physical asset. Art funds, structured much like other investment funds, allow investors to partially own pieces of art.
MasterWorks, for example, is a fund manager that acquires blue chip art from auctions on behalf of its investors. It creates a holding company for each piece to acquire, store, promote, and resell it for profit. The firm registers the company with the Securities and Exchange Commission and issues shares to investors.
These funds make investing in art more accessible and the market for its shares more liquid. Investors can buy and sell shares more easily than they can buy and sell the actual pieces of artwork.
Firms conduct research to identify artworks with a good chance of appreciating in value, and they oversee the maintenance required to keep them in pristine condition. However, investors pay a fee for the service and don’t take physical possession of the art.
Unfortunately, there is no such thing as an art exchange-traded fund (ETF) or mutual fund. Focusing an ETF or mutual fund on art is impractical given the art market’s illiquidity.
Art’s singularity and inherent scarcity prevent fund managers from simply buying more Renoir or Basquiat paintings to satisfy increasing investor demand. Similarly, if many shareholders of an art fund wanted to redeem their shares, the illiquidity of the art market would prevent the manager from easily selling the fund’s assets.
