How To Invest In Blue Chip Art
When investing in blue chip art, there are a few things to consider. Buying artwork that you like can be important, but it is not a requirement. Many art investors arent experts in the world of art. They may be everymen looking to diversify their investment portfolio.
If looking to invest in art, it is always a good idea to work with an expert. These informed professionals can be critical in making sure your investments are smart. Google can give you a ton of information, but it is no replacement for someone who is deeply connected to the art world. A trusted expert will be able to give you insider information.
Blue chip artworks can sell for vast sums of money. In 2020, David Hockneys Nichols Canyon sold for $41 million dollars. While it is very likely this artwork will increase in value, most of us cannot afford these sums. A company like Masterworks allows you to buy a share in paintings by well-known artists. It is the first company that offers crowdfunding, fine art investment opportunities.
Many investors have diversified portfolios with a mixture of stocks, bonds, real estate, precious metals, etc. If you want to invest in art, you may also consider investing in different artists, styles, and mediums. Trends can come and go, and by diversifying your art portfolio, you increase your chances of making big profits.
How To Make Your First Investment In Art
You can easily find art to purchase at galleries and auction houses . You might also check out local art fairs. Online magazines and social media channels such as Instagram can help you discover artists you like, and you can buy works directly from artistsâ websites. Or you might dive into the world of NFTs, which represent ownership of digital art.
There are several ways to invest in art, each with varying degrees of risk and reward.
High risk and high price tag: You can buy original works at auctions, galleries, and art fairs however, doing so comes with the highest price tag and highest amount of risk. You can try to 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 may have trouble reselling it.
Low risk and low price tag: Instead of buying an original, you could opt to buy a print of an original painting or drawing. Many artists and galleries will make limited-edition prints of some works and give collectors the opportunity to buy a print 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 usually aren’t unique, they don’t increase in value in the same way as the originals.
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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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.
The Performance Of Blue Chip Art
The econometrics team at ArtPrice has developed an index of the top 100 most important artists to help financiers and investors quantify the art markets value accretion by focusing on its most stable elements.
Here is what they found:
Their findings show that since 2000, the top of the art market has appreciated at an average annual rate of 8.9%, while the stock market has trailed it significantly, growing at a rate of 3.4% in the same time-frame.
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The Masterworks Art Selection And Investment Platform Process:
The organization employs 17 experts who hold a stringent screening process for every art piece. It consists of the following steps:
- Masterworks sifts through a collection of over 1 million auction documents to pick the paintings by bestselling artists.
- The artwork itself is assessed. They consider the following: Is the artist well-known around the world and thus have a worldwide collector base? What is the appreciation rate of each individual artist? Is there enough market for the artists work? And an appreciation of the competition risk for the artists work.
- When a piece is bought, Masterworks applies for an offering circular at the SEC or Securities and Exchange Commission, which allows them to sell it publicly.
- Investors can make an investment in the piece for $20/ share.
- The artwork will remain on display at the Masterworks gallery up until it is purchased by a collector. The piece, generally, is expected to be kept for 3 to 5 years until its sold and the art pieces proceeds allocated to shareholders.
What To Know Before Investing In Art
When you invest in a piece of art, you’re 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.
That’s easier said than done.
- Choosing an artist can be difficult. You’re unlikely to discover the next big artist before they’ve earned a reputation and start commanding high prices for their work. And, sad as it may be, works by living artists don’t fetch the same prices at auctions as pieces by those who have passed away.
You also can’t 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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Speculative Art Vs Blue Chip Art
It might be possible to buy a painting for $10,000 at any New York art gallery in the hopes that it will one day be worth millions. However, the likelihood of this happening is the same as winning the lottery or being struck by lightning. At the other end of the spectrum, investment-grade art can carry a price tag of 6 to 8 digits. These artworks have a wide collector base, and they show much more predictable rates of economic appreciation.
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How to Invest in Blue Chip Art
While most people cant afford art that costs millions of dollars, investment platforms like Masterworks allow people to make investments in $20 increments to own a share of a masterpiece by Picasso, Warhol, or other bigshot artists.
The company uses ArtTech to analyze auction data to anticipate which artists and artworks will appreciate in value over time. It targets work by artists whose pieces have typically yielded annual returns of 9 percent to 15 percent. Artworks are registered with the SEC, and no one investor can hold more than 10 percent of an individual piece. Proceeds are divided among all investors.
Should I Invest?
The answer isnt a simple yes or no. First, despite artworks by the top 100 artists performing very well, the market is volatile and often fickle. In 2019, The Art Newspaper reported that if you had made an investment in a work by Jeff Koons for $100 in 2000, it would only be worth $54 in 2018.
You should also consider what your comfort level is with a lack of diversity. In 2020, only four women were included in the Artprice100 index: Yayoi Kusama, Joan Mitchell, Louise Bourgeois, and Barbara Hepworth. While there was a little more racial diversity, a quick glance down the list shows the names of mostly white men. There is, however, more democratization among investors no longer is it just the 1 percent who can afford blue-chip art.
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Strong Historical Art Market Performance Rivals The S& p 500
Investing broadly in the art market is not always possible, nor is it a sound financial strategy. Instead, as the discerning collector knows, certain areas have historically outpaced others in terms of performance. While the general art market has seen uneven and temperate growth, one segment stands out as a consistent winnerthe market for works by blue chip artists.
Over the past 18 years, the leading index for the 100 most important artists in the market reflects an annual price appreciation rate of 8.9%, while the S& P 500 returned 3.4% in the same time frame. According to ArtPrice, the index is assembled objectively using its extensive database of over 6,300 auction houses and weighted by an artists average performance over the last five years. The index is adjusted annually, just as with a stock index, and newly successful artists join while those who are no longer relevant are excluded.
Masterworks Review Overall Rating
Only a few Americans, who are fine art investors, are able to afford a classic Jackson Pollock painting or a Cecily Browns stunning work of art. Masterworks enables buyers to enter the prestigious world of art collection at a fraction of the expense of buying one of these iconic works of art at auction.
You must also be prepared to go through a phone interview to verify your identity, which can be a bit of an inconvenience for investors who are accustomed to 100% online procedures. On the positive side, this phone call grants you access to a lifetime art sales rep anytime you need customer service.
Where Masterworks is short on fees and account systems, it makes up for it in design and style. Its platform is well-structured and user-friendly, with relevant documentation shown clearly.
Its pretty easy to link your bank account, and you can start browsing through investments as soon as youve verified your account.
The price database and Insights page of Masterworks are both remarkably full of information, with interesting, easy-to-read posts on everything about art and the art market.
It is worth noting that Masterworks is not a one-stop shop for long-term investment and retirement. E even a Van Gogh and a Warhol can lose value because art is speculative. If you plan to open a Masterworks account, use it to support another regular brokerage account.
Sustainable And Social Commitment
If the acquired works are stored at an acceptable cost and in a safe place, we do not move them. Thus, we move works of art only when it is essential and through the use of low CO2 emissions transport logistics, reusable transport materials, and pre-established transport routes thanks to our logistic partners. In the case of our own exhibition, we follow the recommendations of sustainable practices established by Ki Culture to promote sustainable management of cultural heritage.
We dedicate 0.3% of our funds to Social Art, that is, to singular artists to give visibility to art created by people with functional disabilities, mental illness, or people at risk of social exclusion through agreements with artistic communities or specialized NGOs.
When we select works of art linked to their Investment Theme, we take into account positive discrimination for the inclusion of underrepresented recognized artists and for greater recognition of women and LGBT+ artists.
Diversification Keeps You Running
Any good financial advisor will tell you that diversification of your portfolio is critical for long-term success. As you already know, nobody in this investing business has a crystal ball. Instead, the smart approach is to spread your bets across various names. This way, you can make steady profits while minimizing downside risks.
Naturally, this concept is all the more pertinent when dealing with blue-chip art investments. Like stocks, art is a numbers game. Some pieces will knock it out of the park while others may be range-bound for years. Diversification takes some of the edge off the fine art markets volatility and ambiguity.
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.
Masterworks Risk And Return
Masterworks is a fairly new company with just a couple of years under its belt. That makes it hard to break down an exact historic performance.
To get an idea of the sorts of gains Masterworks expects, we can look to the Artprice100 index. This index is designed to track the performance of top artists and far outpaces the S& P 500.
Artprice100 index and Artprice Global Index vs. S& P 500. Via artprice.com
If you poke around on the Masterworks website, you can find a history of both winners and losers. Even paintings by top artists like Claude Monet and Vincent Van Gogh occasionally lose value. But gains tend to outpace losses.
We’d be more wary of Masterworks offerings by living artists, such as Banksy. Here, there is a whole additional suite of concerns. The artist could wind up in the headlines for poor behavior, which would quickly devalue previous artworks.
Art can be highly subjective as well, which makes some works harder to value.
Like with stocks, bonds, and other investments, a diverse portfolio can help you manage risk. While investment in Artwork might be a fun addition to your portfolio, it should not constitute a big part.
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How To Sign Up With Masterworks
Since Masterworks is a specialized investment platform, you need to make a request for an invitation to join. This can be done by filling out a short online application form with the following information:
- Your name
- Account type Investment advisor, individual investor, art dealer/ advisor, existing art collector, or other
- Your investment portfolio size, which consists of your bonds, stocks, and other assets
- And an answer to the question How much would you consider investing in blue-chip art over the next 12 months?
To join, you should be at least 18 years old and create a password for your Masterworks account.
A bank account must also be linked to your Masterworks account. Plaid will make two test deposits to your account to validate it. Following that, you would need a Dwolla account to keep and maintain the funds deposited to you.
Investing In Blue Chip Art
In the business world, the term blue chip refers to large or established companies, stocks, or assets. Their value is universally accepted, and investing in them is considered a safe bet. This can be compared with speculative assets, which are less established, have a lot of growth potential but could also crumble into nothing in the case of an economic crisis.
Blue chip artworks are those that have been created by universally recognized artists. Their position in the auction markets will have been well established over many years of solid sales. It doesnt matter how valuable the artwork is to museums, collectors, or history. What really matters is the resale value.
Blue chip artists are considered masters. Some of the top-ranking artists at auction are Picasso, Calder, Miro, Chagall, Dali, and Buffet. Many art collectors buy artwork for the sheer love of it. However, it is impossible to ignore the possible returns.
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Blue Chip Art Vs The Stock Market
Perhaps counterintuitively, blue-chip art investments tend to be more stable than benchmark equities indices like the S& P 500. For instance, between 2008 and 2009, the global art market value dropped over 36% whereas the S& P 500 shed only 22%. However, in 2010, global fine art had jumped 44% while the S& P gained only 19%.
In the end, the S& Ps dramatic rise has provided the superior return profile. Nevertheless, the volatility of stocks could mean that future corrections may take a while to recover from. In contrast, fine art valuations stay relatively stable once it has found its price threshold.
How Do I Get Into Buying Art
To start buying art, wed recommend you to spend some time going to exhibitions and opening events degree art shows watch out for some Instagram feeds and hashtags go to small galleries visit art fairs and search online. With the current situation, online is the future of what it means to buy art.
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How Do You Sign Up For Masterworks
Unlike some alternative investment platforms, you dont have to be an accredited investor to start with Masterworks. Instead, you have to request an invitation and become a member, which requires a phone interview.
You would think a company that uses Blockchain technology to track shareholders would be forward-thinking enough to let you sign up completely online, but you have to make a real phone call with a human to join. Thats inconvenient.
Masterworks does not have specific minimum investment amounts. Minimums vary depending on the specific investment offerings available at the time of investment
Why Is Fine Art So Expensive
With plenty of demand for artwork, it is the supply side of the equation that often leads to outrageously expensive prices for art. Scarcity plays a huge role. Supply and demand still play a role. Demand still exists and, even though the artist is still alive, he or she can only produce so much art.
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