Investing in Art: The Modern Way to Diversify Your Portfolio

By Todd Kunsman

Money Tools

Published on

Updated on

This post is sponsored by Masterworks. All opinions are my own.

All great investors know that diversification is key to long-term financial and investing success.

And while many people dabble in stocks, bonds, and real estate, art and collectables sometimes are not brought up in the conversation.

But with 88% of fund managers recommending allocating to art according to Deloitte, that seems to be changing.

“While the S&P declined 5.1% in 2018, the art market returned 10.6%,”  according to the Wall Street Journal. Art was the top performing asset class of 2018, beating gold, real estate, classic cars, and the S&P 500.

As I have continued to aggressively save money and invest more, I’ve been looking for additional ways to diversify my cash, and art has been catching my eye.

Additional Reading: Why Art Should Be in Every Investor’s Portfolio

Traditional Ways to Invest in Art

Investing in art can be a bit tricky and while there is some insightful information out there, getting started has not been exactly easy for general investors.

Now, there are a few traditional ways you can invest in art, which we’ll cover quickly below.

You can fork out 7-8 figures

For the well-known artists whose art is constantly in demand and appreciating in value, you can pay for it out of pocket to own it outright. These art investments can cost anywhere from $2mm–$20mm!

I’m sure we all just have that laying around to invest in art, right?

Up-and-coming artists you can take a chance on

The risk in investing in art from up-and-coming artists is there is no true way to tell what that value will be in the future.

Art and the prices are highly subjective and are dictated on trends, buzz, and future demand (if there will be any for the particular artist).

Finding some upcoming art to invest in is really like picking stocks of new companies — it’s not a great way to invest.

However, there is nothing wrong with spending some money on art you might like, but just know it most likely won’t be a big return on investment (if any).

Art investment funds

Another way people have invested in art is investing in an “art fund.” These funds are privately managed by a professional art investment management or advisor firm who receives a management fee and a portion of any returns.

These are not offered to the general public and only for accredited investors.

To be an accredited investor as defined by Investopedia, “you must have an annual income exceeding $200,000, or $300,000 for joint income, for the last two years with expectation of earning the same or higher income in the current year.”

You don’t have to be a millionaire now at this point, but again still leaves big majority out who may have an interest in investing in art.

Based on the above traditional ways, this means the majority of us will miss out on ever being able to invest in the highest-appreciating artwork. That is, until pretty recently.

The Best Way to Invest in Fine Art: Masterworks

Now that you understand a bit about investing in fine art and some of the traditional ways, I want to introduce to you Masterworks.

This digital age has made it easier and more exciting to invest in different assets, like art.

Masterworks is the first art investment platform of its kind that allows you to invest in the world’s most valuable fine art, like works by Andy Warhol, Claude Monet, etc.

Think of it like a real estate crowdfunding platform, where instead of having to invest in the whole asset or the need for large sums of money, you are now able to get a share for a fraction of the cost.

Previously, investing in well-known art was for the incredibly wealthy.

But Masterworks allows investors to purchase interests (or shares) in a painting similar to the way investors purchase shares in public companies with as little as $1,000.

How it works in a few steps

1. Masterworks buys the painting: Their team of art industry experts purchase multi-million dollar works of art, evaluating historical appreciation rates between 9-15%.  The team buys them below fair market value through auction guarantee strategies and established auction house relationships.

2. After the purchase, Masterworks files an offering with the Securities and Exchange Commission and respond to SEC comments to qualify the offering. Yes, they ensure SEC compliance!

Note: Ensure any investment platform you choose is SEC compliant and follows regulations.

3. Once the offering passes SEC and FINRA review, investors will be able to buy shares for $20 per share.

4. Masterworks provides shareholders updates and uses analytics and data to bring transparency to one of the world’s largest unregulated markets by publishing timely content.

5. This is a long-term investment play, with holds anticipated for up to 7 years. At any time, collector can make an offer to buy a painting that you’ve invested in, triggering a vote to sell with all shareholders. If holders of a majority of shares vote to sell, your share of the net proceeds, if any, will be distributed to you (after the costs are deducted, as disclosed in the Offering Circular).

It’s important to know that art investments with Masterworks are not liquid (so use cash you won’t need in a few years) and are longer-term investment plays.

What is pretty cool to me, is the team is seeking to facilitate trading or sales through brokerage relationships, similar to how stock market platforms like Vanguard works. This will take time and no assurance can be given that they will be able to establish a trading market for art shares.

But, I’m excited that they are trying and pushing to make an art investing brokerage platform.

You can learn more about the Masterworks team and their years of experience purchasing art here.

Is Art a Good Investment?

Historically, investing in well-known fine art has proven solid returns and can be valuable assets for your portfolio.

Art is a fine collectable, and these collectables tend to hold or increase in value as they get older or become much more rare or in-demand. Take a look at this historical chart below from Artprice, the closest the industry has to a benchmark.

Investing in Art: The Modern Way to Diversify Your Portfolio

With the revolutionary art crowdfunding platform, Masterworks allows the everyday person to diversify their investments at a much lower barrier to entry. Art investments are no longer just for the mega-rich.  

Interested in learning more about investing in fine art? Schedule time to chat with Masterworks or get started by setting up your account here.