Top-Notch Art Purchases to Consider in 2025
Investing in art isn't just about balancing stocks and bonds in your portfolio. Alternative assets like fine art can also find a place in your investment strategy. Art collecting isn't exclusive to the elite anymore, and it's a great way to diversify your assets and potentially find something stunning for your walls.
Art as an investment? It's worth considering
Despite the high costs often associated with investing in art, it might deserve a spot in your portfolio. The art market is not highly correlated with stock or bond markets – exactly what investors should be looking for when diversifying assets.
During market downturns, such as 2022, art auction records were still being set, proving that art can serve as a hedge against inflation. Investing in art can potentially generate positive returns, but investors should expect returns similar to those of bonds rather than the market-beating returns touted by art indexes.
Before you invest in art
Choosing an artist
Finding the next big artist can be a challenge. Many pieces by living artists don't fetch the same high prices at auction as works by those who have passed away. However, you can't find iconic artists like Monet, Modigliani, Matisse, or Munch in your local antique store or afford their works at auction.
Liquidity
The art market is relatively illiquid, meaning you may need to wait to sell your pieces and incur high fees to do so.
Maintenance and costs
Art requires care and maintenance, from temperature and humidity control to regular cleaning to ensure it retains value. Maintenance costs, such as shipping, storage, and authentication, should also be considered.
How to invest in art
Introduction to investing in art
You can find art to purchase at galleries, auction houses, or online. Researching the artist's reputation and looking for limited-edition prints are common investment strategies. Additionally, non-fungible tokens (NFTs) represent ownership of digital art, offering an alternative form of investment.
Risks and rewards
High-risk and high-price-tag investment options include buying original works at auctions or art fairs. Lower-risk and lower-price-tag options include purchasing prints by established artists or investing in blue-chip art funds.
It's essential to invest in art that makes you happy, as returns can be less enticing than in other asset classes. Alternatively, buying an ugly painting just because of its potential value might lead to disappointment if it doesn't appreciate.
Other ways to invest in art
Art funds
Art funds, structured like traditional investment funds, allow investors to partially own pieces of art. MasterWorks is a fund manager that buys blue-chip art on behalf of its investors, creating a holding company for each piece and issuing shares. Investors pay a fee but don't acquire physical ownership. Unfortunately, there are no art ETFs or mutual funds due to the illiquid nature of the art market.
Art indexes
Art market research indexes, such as the Art 100 or Artprice100, can provide a sense of market performance and reveal potential trends. However, these indexes account only for auction prices and may include selection bias.
Placing a bet on art
Investing in art is a high-risk, high-reward venture. It requires research, patience, and an understanding of the illiquid nature and costs associated with the art market. However, by diversifying your portfolio with art, you may be able to hedge against inflation and enjoy the added benefit of owning beautiful pieces.
Although Basquiat's works might not be within everyone's financial reach, having a certificate of authenticity for his art could be a valuable addition to your portfolio, potentially boosting its average value. Wisely considering alternative investments like art can help diversify your portfolio and offer a hedge against inflation. The art market has shown resilience during economic downturns, as evidenced by the record-breaking auction prices set during 2022.
Investing in art could generate returns similar to those of bonds, rather than market-beating returns as often suggested by art indexes. However, it's crucial to invest in artists who have a proven track record, such as Monet, Modigliani, Matisse, or Munch, to ensure better chances of appreciation in value.
Art market funds, like MasterWorks, allow investors to partially own blue-chip art without the high costs and responsibilities of physical ownership. These funds can contribute to a diversified portfolio by offering an alternative asset class.
