Art investing for everyday investors

When the topic of investments comes up, artwork might not immediately spring to mind for most people. Traditionally, we associate investments with stocks, real estate, or bonds – the more conventional avenues. However, the art world holds a unique and captivating dimension that has gained recognition as an investment opportunity.

While stocks and bonds offer quantifiable returns, art investments provide additional benefits that can blend financial gains, cultural enrichment, and emotional resonance. It’s like investing in a story, a piece of history, and a piece of the artist’s soul all rolled into one. Consider it a form of investment that offers a touch of intrigue. The value of a work of art isn’t just rooted in its market price. It’s also rooted in the narratives it weaves, the conversations it sparks, and the emotions it stirs. Art, in its many forms, has the power to transcend time, speaking to different people in different ways, across generations.

A few weeks ago I came across an article published in the Business Insider written by Rickie Houston and Tessa Campbell. It was a review for an online investment platform called Masterworks that has emerged, inviting everyday investors to explore an unconventional asset class: fine art. How does it work? Simple. Masterworks does all the heavy lifting, like finding the painting, buying it, storing it, and eventually selling it.

One caveat is that the minimum amount required to invest is US$15,000. However, Masterworks files each offering with the Securities and Exchange Commission (SEC) so that nearly anyone can invest in coveted artwork for a fraction of the price of the entire piece. When the painting sells, investors get their share of the net proceeds. With its unique approach to securitising art pieces, Masterworks allows investors to engage with the art market in a way that diversifies portfolios and potentially yields substantial returns, democratising art investments for everyday investors and paving the way for a revolutionary path that creates opportunities for those willing and able to take the risks.

Marlon Rhoden

I love the idea of an online platform to facilitate investing in art because it contributes to the art market infrastructure, which includes other avenues such as auction houses, galleries, and art fairs, which can impact the value of a piece of art. These platforms provide exposure, facilitate transactions, and create a competitive environment for buying and selling.

However, the Business Insider article also made me wonder about other factors that drive artwork valuation and what investors might want to know before venturing into this alternative asset class. In this article, I share my thoughts and findings on this, hoping it might allow readers to make a well-informed decision the next time they consider investing in some art.

Artistic mastery is one of the primary factors that contribute to the value of art, along with the artist’s skill, creativity, and originality. Exceptionally talented artists who innovate, challenge conventions, and produce unique pieces often command higher prices. An artist’s legacy and reputation also influence the value of their work. Established artists with a consistent body of work and a compelling reputation tend to have more stable and higher values placed on their work over time.

Additionally, scarcity and rarity are other factors at play. Limited supply contributes to the value of a piece of art. If an artist produces a limited number of works during their lifetime or if a particular piece of art is one of only a few in existence, its scarcity can drive up demand and, consequently, its value. Historical and cultural significance also play a role in valuation. Art can reflect the spirit of its time, capturing social, political, and cultural contexts. Artwork that holds historical importance or symbolises significant historical moments can be valuable as artefacts of human creativity and heritage.

Like any asset, investors should look at market trends and speculation to which art can be subject. Artists who gain prominence, receive critical acclaim, or become part of cultural movements can experience surges in demand and value. However, it is important to note that market speculation can also lead to volatility. According to Investopedia, other risks that investors should be mindful of are “a lack of investment income or dividends, the prevalence of counterfeits, and a greater than average risk of destruction of the assets”.

Artwork featured in prestigious exhibitions, galleries, and museums can gain recognition and validation from experts and the public. This recognition can contribute to a piece’s perceived value and collector interest. Of course, there is also the emotional and aesthetic appeal with which more people might resonate. The emotional response and the personal connection artwork evoke in viewers can influence its value. Art’s ability to evoke feelings, memories, or intellectual contemplation can make it more desirable to collectors who resonate with its message.

Finally, authentication and provenance (a documented history of ownership) are crucial. Works with clear and reliable provenance are more likely to be valued higher as they provide assurance of their legitimacy and historical context and reduce the chances of uncertainty about their origin, making them a more desirable acquisition.

While we have yet to observe an official forum for art investing locally, digital assets such as non-fungible tokens (NFTs) might soon emerge as a potential opportunity for local investors. Additionally, the Masterworks platform permits non-US residents to invest, except residents of countries under the United States Government embargo.

In essence, traditional art investments and NFTs offer diverse ways to engage with the art market. Traditional art investments are grounded in physicality, history, and subjective interpretations, while NFTs leverage digital scarcity, ease of transfer and new forms of creativity. The value of art is a multifaceted concept that arises from a blend of artistic merit, historical significance, collector demand, market dynamics, emotional resonance, and cultural importance. This complex interplay creates a vibrant and diverse art market in which works of art can achieve significant value. While it might not be the conventional route to investment, the art world brings unpredictability, a dash of creativity, and a splash of inspiration to the realm of financial growth. It’s an investment that goes beyond numbers and invites you to invest not just in a canvas but in a world of imagination and possibility.

Marlon Rhoden is a research analyst at VM Wealth Management Limited with a passion for seeing clients build their wealth. His particular focus is on the equities and bond market.