There’s no question that art is growing as an option for investors and has been for several years now. After all, there is plenty of upside for the asset class, including protection against inflation and no direct tie to a fickle stock market, especially during this time of economic uncertainty.
What’s more, the digitization of the art market has increased transparency and made opportunities more accessible. But truly understanding art as an investment is more than a notion. Let’s look.
The Issue
Slowly but surely, the art world is shedding its image as a rarified, stodgy arena reserved for the rich and ultra-wealthy. The transformation can be likened to that of commercial real estate about a half-century ago, when such investments were basically confined to a niche category of investors. Over time, real estate investments became common and widely accepted ways to diversify portfolios.
How Technology Has Helped
The technological evolution has certainly helped the growth of art as a burgeoning asset class. The internet has increased transparency, as we’ve mentioned, in what is now a digital world. You’ve got online databases and auction houses, online market data, and online fairs and catalogs. Artists have websites that can be reviewed and have new and a myriad of electronic ways to communicate. Because of all that, more and more people are starting to think that they, too, can invest in art.
What are Some Benefits of Investing in Art?
We’ve alluded to a few advantages in art investment, but they also include:
— A hedge against currency devaluation, in addition to inflation
— Only a small risk of losing the principal investment
— No requisite minimum investment
— Favorable tax considerations
— A low correlation with other financial assets equals lower risks
— The possibility of additional income if the art works are lent to exhibitions and the like.
— The lack of geographical risk means that art is more portable and can be easily moved.
What are Art Funds?
You may have heard of these. Such funds are increasingly popular as a way for investors to get involved in art as an investment asset. In general, art funds are privately offered investment funds that seek to generate returns through the buying and selling of art works.
The advantages of joining an art fund include:
— You can leave things to experts. If you invest in a fund, you simply rely upon the fund manager in terms of what art is bought and when it’s sold. That saves you time and resources in terms of having to establish relationships with dealers, auction houses, auction houses, etc.
— More control. Yes, it’s true that you don’t get to choose what art gets bought — funds make those expert decisions — but, unlike with stocks or other pooled investment funds, you can choose the asset in which you invest.
What is Fractional Art Investing?
Such investing involves buying share of a work of art, with each share representing a percentage of total ownership. How it works is, if you purchase shares of an artwork and the art collector who owns it sells it as a profit, the shares you hold rises in value accordingly.
The alternative investment vehicle is popular because of its nearly non-existent correlation to the stock market. What that means for the investor is that, even during Wall Street slowdowns, one can experience gains.
Now that you have a better idea of art as an investment, you might be interested in getting into the market. As we’ve emphasized, you don’t need a lot of cash to get started, especially if you go with an alternative investment platform such as Yieldstreet, which offers both an art fund and fractional ownership.
