How To Invest In Blue Chip Art

Like Casino Gambling Art Can Be A Fun But Extremely Risky Way To Play With A Part Of Your Portfolio And The Returns Arent Highly Correlated With Stocks

Want to own just a piece of a great artwork? Now you can, but should you?

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In the fall of 2018, a Banksy work, Love is in the Bin, sold for $1.4 million.

Now the original buyer has put the work up for sale, and its expected to fetch over $5 millionthat would amount to a return of more than 250% on the original investment.

What if, instead of the art markets being the sole purview of the deep-pocketed, everyday people could buy shares of a pricey piece of art and sell the shares as they please?

Thats exactly what a new platform, Masterworks, seeks to do.

Economic theory suggests that, by definition, investing in art could provide lower returns than investing in stocks. Thats because part of the return to investing in art ought to be the intrinsic enjoyment of the objects themselves.

Art investment funds have existed for over a century. Masterworks, however, has put a new twist on an old practice, in that the platform allows individuals to buy shares of specific artworks in $20 increments. Investors can then sell these shares in an easy-to-use secondary market or wait until Masterworks sells the piece and receive pro rata proceeds.

For nearly 10 years, Ive taught a course on economics and the arts with art historian Nancy Scott. In this course, we spend time discussing the history and profitability of art investing, both in theory and in practice.

The French pool their resources

Not all funds are equal

But what do economists say about art as an investment?

Masterworks Fractional Share Investing: Explained

Investing in fractional art shares is revolutionary its new, its disruptive, and it could be pretty profitable.

Heres a quick overview of how investing in fractional shares with Masterworksworks:

• Artwork is bought

• Easy to link your bank account
• The website platform is easy to use
• Easily accessible Masterworks funding calculators

The major con when it comes to signing up to Masterworks is that you will have to undergo a phone interview .

The platform itself is a simple design with an interface thats fairly intuitive and that can help you find some paintings you may want to invest your money in.

Investing In Art Stocks

Diversifying your investments isn’t just about wisely balancing your portfolio between stocks and bonds. Alternative assets such as fine art might have a place in your portfolio as well.

Art collecting and investment is no longer limited to the wealthy elite. If youre interested in art, then you can diversify your assets and even find something nice to hang on the wall. At the very least, your investment will look a heck of a lot better than a stock certificate.

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What Artwork Should I Choose

With guidance from our expert art advisors, Smith & Partner can help you select the finest and most profitable pieces in our collection. Investing in blue-chip art will create an incredibly robust portfolio one that can undoubtedly withstand the pressures of a financial crisis and economic unpredictability. However, if blue-chip is out of your reach at current, our art brokers would be happy to walk you through your other options of investment paths to still see incredible returns on your assets.

Should You Consider Blue Chip Art Investments

Before you set out on learning how to invest in artwork, you should first consider whether the concept itself is right for you. Some folks, after spending considerable sums of money, realize a bit too late that alternative investment vehicles do not fit their overall strategy.

And this segues into another point: As an alternative platform, blue-chip art investments incorporate some concepts that are similar with the equities market. However, if your investing experience is limited only to publicly traded stocks, you will need to spend time educating yourself on fine art basics.

Finally, art as an investment features distinct opportunities and risks. Obviously, art doesnt pay dividends or generate revenue and earnings. Therefore, many creation-based investments have somewhat of an all-or-nothing value proposition.

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What To Know Before Investing In Art

When you invest in a piece of art, youre buying it with the expectation that demand for that piece or similar pieces will increase faster than the supply. If that happens, then the value of the piece will increase, and you may be able to sell it for a profit.

Thats easier said than done.

• Choosing an artist can be difficult. Youre unlikely to discover the next big artist before theyve earned a reputation and start commanding high prices for their work. And, sad as it may be, works by living artists dont fetch the same prices at auctions as pieces by those who have passed away.

You also cant just go down to your local antique store and find a real Monet, Modigliani, Matisse, or Munch on sale for a few bucks. Buying work by one of those artists at auction would cost millions.

Various other costs to consider with the purchase and sale of artwork include sales tax, transportation expenses, authentication and appraisal fees, and insurance. You may also want to buy a nice frame or another type of display mechanism for your artwork.

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Does Art Increase In Value When Artist Dies

The prevailing notion in many parts of artland is that art prices automatically go up when an artist dies, as if death trips some kind of magical instant inflation switch. Plenty of art buyers as well as artists believe in this posthumous profit scenario, but in truth, its more of a myth than a reality.

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Invest In An Art Fund

A mutual fund is similar to Masterworks, where each person in a group owns a little bit of the piece of art. In mid-2014, there were more than 70 art funds operating.

Mutual funds tend to be more exclusive in terms of starting price minimum buy-in may start anywhere from $2,500 to upward of $1 million. You also pay a management fee of around 1% to 3%, and the fund will keep a percentage of profits made.

But art funds generally come with more control and greater return potential than traditional investing. Art investment fund Anthea said it returned 23.4% between 2013 and 2014, with its best investment earning a 404.3% return. The Fine Art Fund Group says it provided a 9% return before fees.

Aside from the high buy-in, theres another major downside to this method: You typically dont get to enjoy the art yourself. But at least one private fund, the Artemundi Global Fund, has found a workaround by allowing investors to take turns displaying the artwork in their homes.

Masterworks: The Phone Interview

In order to activate your Masterworks account, you do need to schedule a phone interview .

I scheduled my phone interview within 2 days of setting up my Masterworks account so time-wise, I was pretty lucky to land a spot right away.

Heres what the phone interview is really for:

My representative was a bit late for my phone interview, so I had to reschedule it for a later time in the day.

When I ended up speaking to the representative, I must say that he was very well versed, definitely a salesman , but Ill give it to him: He was very knowledgeable about Masterworks.

In fact, I bombarded him with probably 8 questions, and he was able to answer each one of them to my satisfaction.

After exactly 15:15 minutes, my phone interview was up it felt like only 3 minutes had gone by and I continued on with my day.

After I suggested we discuss investing at another time, he agreed and we left things on a good note.

Dont feel shy about standing your ground just be true to what you want to accomplish on this call. Its ok to firmly say no, thank you if youre not ready to invest yet.

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Key Takeaways: How To Invest In Art

Not everyone knows how to invest, let alone know how to create passive income through art investments.

But now is the chance to learn and see if you can grow your wealth through the art market!

Investing in art can be a great way to build your portfolio and increase your ROI over time, so look into NFTs on Coinbase or check out art listings on Masterworks.

Start Your Digital Wallet

The first thing you need to do when you want to invest in art is to start a digital wallet.

A digital wallet is an online account where you can store digital assets and keep your payment methods safe and sound.

There are many different digital wallets to choose from, like PayPal, CashApp, Venmo, and more, so find one thats right for you to keep your digital funds.

Once youve picked a digital wallet, youll need to create an account and deposit money into your account. Once you have money in your account, you can start buying NFTs.

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How Does Masterworks Work

One advantage of investing with Masterworks is that the process is quite streamlined. In fact, you can add artwork to your portfolio in just five steps.

If you want to get out early, you can sell on Masterworks secondary market. Or you can buy shares of an artwork that is being sold on the secondary market, which you can view on their website. Note that the secondary marketplace is only available to U.S. investors.

Secondary Market Investment Options

Masterworks has created a secondary market where buyers can purchase and sell their shares. If you are an owner of a share, you have the option to list it. Meanwhile, as a buyer, you can check at the listing and make a bid.

Additionally, you can check out data on whats available on the secondary market.

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Lack Of Correlation Between Fine Art And Traditional Asset Classes

Alternative investments are appealing for portfolio diversification because they are relatively uncorrelated with traditional assets, and art is no exception. During the financial crisis of 2007 to 2009, the decline in art prices for the top 100 artists was estimated at between 26% and 28%, while the S& P 500 declined 56% from its peak. As a result, blue chip art presents an opportunity for investors worldwide who want to include it as part of their alternative asset portfolio management strategy and lower their overall risk through diversification.

Economists have used various approaches to calculate the correlation between art prices and other asset classes. Based on their research, it is believed that the coefficient between art prices and the S& P 500 lies between -0.03 and .19. The relatively low correlation signals that when equity markets decline, fine art is more likely to retain its value. Art markets, however, are not immune to systemic risk, and in 2009, there was a sharp contraction in the number of expensive artworks being purchased. This decline in volume occurred just as stock prices were beginning to rebound, reaffirming the view that art lags equity markets by six to eighteen months. Historically, slumps in the art market have been characterized more by a lack of liquidity and lower sales volumes than sharp declines in value or prices paid for important works.

Benefits Of An Art Portfolio

While building an art portfolio has many nuances and risks that you dont find in other investment classes, this segment provides benefits that are unique.

• Individuality: Its boring to trade with everyone else. By investing in art, you go against the grain and are able to express individuality that you wouldnt be able to with regular stocks and bonds.
• Stability: While forecasting an individual artworks performance is a hit-or-miss affair, the blue-chip art market as a whole is relatively stable. As an exclusive arena, you may experience insulation from economic downturns.
• Potentiality: Though you shouldnt engage the blue-chip art market as a get-rich-quick scheme, a possibility exists of outsized returns. Thats because of simple supply and demand: You only have so much of revered quality artwork available.

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What Else Can I Invest In

There are many other ways to start investing in other ways besides art. Some other options include stocks , bonds, real estate, and cryptocurrency:

• Robinhood: Robinhood is a DIY investment app where you can invest in stocks, cryptocurrencies, and EFTs with no commissions. Learn more about this DIY investment app in our Robinhood Review!
• Acorns:Acorns allows you to invest in a variety of things, including EFTS, stocks, and bonds. The app is simple to use and can be a great way to get started in investing. Plus can round up your purchases to invest spare change.
• Betterment: Betterment is a Robo-advisor that allows you to invest in a variety of things, including stocks, bonds, and real estate. Our Betterbement Review shows how this Robo-advisor offers a hands-off approach to investing, which can be helpful for new investors.
• M1 Finance:M1 Finance is another Robo-advisor that has pre-made portfolios you can choose from to match your risk tolerance. M1 Finance offers retirement funds, stocks, real estate, and more for investing.

Is It A Good Investment

The answer to this is not a simple yes or no. Despite artworks by the top 100 artists performing very well, the market is still volatile. Like all investments, it comes with risk. When making any investments, you may want to consider the best investment newsletter to sign up for. If you bought an artwork by Jeff Koons for $100 in 2000, it would only be worth $54 in 2018, showing that these artworks can also depreciate.

Another thing you may want to consider is the lack of diversity in the art world. The Artprice 100 index only includes four female artists, and there is also little racial diversity.

You always need to do your own research and consider whether you think they will still be a top artist in 10 or 20 years. You must believe in the history and the future of that particular artist and artwork.

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Defining Blue Chip In The Art Market

The division between speculative and established or blue chip artists can be complex, however, price serves as a strong signal in the marketplace. While you can acquire a painting for as little as $10,000 at any number of New York galleries, in hopes that it will one day be worth millions, the chances of doing so are on par with winning the lottery. On the other end of the spectrum, so-called investment grade art, which carries a six-to-eight-digit price tag and has a deep collector base, exhibits much more predictable appreciation rates. The artists which fall into this category are often household names, with a track record of achieving high, if not record-breaking, auction sales.

Masterworks Fees And Pricing

Let me be upfront about the Masterworks fees and pricing: The fees are a bit high and they may be a little complex.

Basically, the Masterworks fees operate very similarly to how fancy hedge funds operate:

• An annual management fee is charged
• Masterworks takes a flat 20% commission once the artwork sells
• Whatever money is leftover, is then redistributed to the investors

Heres what you can expect when you invest in Masterworks:

Masterworks typically keeps a piece of art between 3 to 10 years.

If Masterworks is unsuccessful in selling the painting to individual investors for a reasonable profit by year 7, then Masterworks reconsiders its strategy.

In other words, if Masterworks decides to sell the artwork at an auction house, your net profit shrinks but you could still make a profit.

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Have A Collectors Mindset

A post from Stanford Graduate School of Business in 2013 made an excellent observation. Researchers state that you should buy paintings if you like looking at them, but not to make money.

Thats not to say that you cant make money. You should know, however, that arguably most people who invest in fine art have a collectors mindset. If the piece in question doesnt perform that well, they dont feel an overwhelming sense of loss.

Again, the point stands make sure youve established your core holdings first before diving into fine art.