Art is widely regarded as the crown jewel of human civilization, whose aesthetic appeals and unspoken power transcend geographical, language and cultural barriers and touch the souls of millions alike. The creative capacity, emotional depth and timeless quality of fine art render it an invaluable asset in the broadest sense of the word. Meanwhile, it might be financially valuable too, not quite unlike investing in securities or futures. However, casual investors might be a little hasty in comparing the fine art market with that for stocks and bonds. In fact, the differences between the niche art investment and traditional investment markets are rather profound. So what exactly does investing in an artwork entail? What is the potential benefits of artwork investments? Fret not, for we will unpack these questions in this article.
What is Artwork Investment?
As the name suggests, artwork investment refers to the purchase and sales of artworks, usually facilitated by third-party agencies, which include dealers, galleries and auction houses. While the average investors are less likely to have much fine art in their portfolio, it is undeniable that art as an alternative investment opportunity is gradually gaining traction especially among savvy investors who seek diversity. This is precisely because artwork investment is comparably resistant to external market pressures and thus, not prone to depreciation, unlike other types of volatile asset classes. At times, investing in art may even deliver handsome returns as the market witnesses price spike in a blink of an eye.
Yet, the idea of investing in artworks, be it classical or modern, or in the form of painting, sculpture or installation, remains daunting to average investors. Impeded by the seemingly insurmountably high barriers to entry and the opacity of the market, ordinary investors are probably at a loss as to what to do when it comes to art. Thorough market research is the key to overcome the fear of venturing into unfamiliar yet potentially lucrative territory. To invest in the stock market, one conducts background research, checks the fundamentals and looks at the earnings reports. Similarly for art investment, one has to familiarize oneself with a lot of background information before making the first purchase. It does deviate too much from the regular forms of investing, with only slight differences.
Why is Artwork Investment a Financially Viable Alternative?
Once the worries that plague newbie investors are contained, let us look at the perks of investing in art that makes it stand out from its mainstream counterparts.
- Physical Asset
A big plus of artwork investment is that it takes the form of a tangible entity. It is placed in the hands of the investors, instead of being managed by an investment firm, who due to negative press, market fluctuations and other external reasons, may seem unreliable at times. In market downtimes, nothing can be more reassuring than keeping one’s assets in his own living room. The tangibility of the artwork allows investors to control over it, from its management to its care and storage.
2. Accessible Market
Buying art is easy and fun, especially in a burgeoning market where many delightful things are available for purchase, from a $2000 print by KAWS to a $30 million painting by Pablo Picasso. Not to mention the industry has witnessed a continuous boom as more art galleries, art fairs and online portals start to emerge. Artists, the upstream of the art economy, have some sort of representation guaranteed by galleries, regardless of their fame and popularity. As for the buyer’s end, the red tape is streamlined to a simple screening process where anyone who passes a basic credit check is eligible to bid, no probing and further questions asked
3. Appreciation over time
While an investor’s motive for purchasing art may be varied, the significance of art on his balance sheet is definitely increasing. Larry Fink, the CEO of BlackRock, once remarked that “the two greatest stores of wealth internationally today include contemporary art”, which is considered “a serious asset class” like “apartments in Manhattan, Vancouver and London”. This is not an overstatement as there are many examples of artworks being sold for much more than their purchase price over time. Though there aren’t many generally accepted indices for the time being, prices of artworks tend to be inflated by subjective, sometimes emotional factors. Increasing enthusiasm about art as a capital asset guarantees the continuous growth in the appetite for arts globally. And we all know what these soaring demands can bring.
4. Minimal Market fluctuations
Financial markets go through ups and downs, sometimes faster than roller coasters. Not the art market. Artworks, especially the blue-chip pieces created by old masters, stand the test of time. Even when we zoom into the post-war contemporary art scene, the game-changing boom in collector habits and behaviours has morphed into a cultural spectacle that shows even greater promise.
Conclusion?
Art, the crystallization of unbound creativity and immense emotions, is without a doubt the new alternative to diversify one’s investment portfolio.
We have covered the broad context of why artwork is an esteemed value for investment, but we have yet to tell you how you can invest in one yourself. Interested to find out more? Stay tuned to Part 2 of this article where we dive deeper into how your investment journey in artworks and collectibles can be enhanced with blockchain technology.
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