Is Investing In Art Profitable?

November 16, 2021

For too long, there has been a rigid preconception that investments must revolve solely around the actions of the stock market, the mood of the high-rollers on Wall Street, and obscure shares of companies situated thousands of miles away. While there were stories about those eccentric individuals selling their Wedgewood china collection for thousands of dollars, for the most part, the idea of investing in art and sculpture was essentially reserved for the wealthy elite, in possession of millions of dollars of paintings and artworks which were passed down through heirs.

Thankfully, this idea has come unraveled in recent years, as a growing number of investors are realizing the value and potential profit available. Wondering just how profitable investing in art can be? You may be pleasantly surprised…

Getting Started

In order to succeed in art investment, it is crucial that you do plenty of research before you dive into anything – in this, art investment is the same as any other major investment opportunity. This is not a strategy for easy cash; you need to make sure that you have a broad understanding of the art world, artists, how art is valued, movements and styles, how galleries and auctions work, and the basic premises of investment.

As a general rule, any work completed by a living artist is valued lower than that of a deceased artist, no matter how prolific the former is. This is largely due to availability: once an artist has died, there are a finite number of pieces that can be attributed to them, and this drives up the value based on the basic principles of supply and demand. With a living artist, however, new pieces and collections can be produced at any time, meaning that their works will generally sell for less. This is not a hard and fast rule – as with any market, there are always anomalies and exceptions, but for the most part, any art produced by a deceased artist will sell for more, and accrue value faster than a contemporary piece.

Making Connections

As the old adage goes: the art world really does revolve around who you know, rather than what you know. When you are conducting your early-stage research, make sure that you take the time to connect with gallery owners, curators, and art dealers – these figures will play a large role in your journey to success.

Make a point of visiting exhibitions, auctions, events, and art fairs. You can use these events to look for new, up-and-coming artists, and build your network of contacts in the fine art space, helping you to cast your net as widely as possible. Not only will this increase your knowledge and understanding of art and artists, but it also means that you will be more likely to be top of the list when a promising investment comes into the gallery. And remember: be nice to everyone you meet – not only is it basic decency, but you never know who has the potential to unlock new doors.

In some cases, it can be a good idea to hire an expert to act on your behalf – professional art consultants will already have the connections and knowledge to help you get ahead. They can also advise you on the best pieces to invest in, your maximum bids on particular auctions, and steer you away from what could potentially be bad investments.

What To Look For

When you are getting started in your investment journey, it is easy to feel overwhelmed by the array of choices available. In the simplest terms, there are three main types of artwork you could invest in:

  • Originals or one-of-a-kind pieces – these will require the highest initial investment but will offer the greatest potential payoff when the time comes to sell.
  • Prints or copies will be more affordable – and therefore more appealing to the new investor – but they will offer a lower potential profit. If you choose to focus on prints, turn your attention to a type of print known as a ‘giclée. This offers a closer match to the original piece and is a good middle-ground between the original and a mass-produced print. When considering prints, also remember that one print from a limited run will offer greater value than a print that has been mass-produced, and has a large number of copies.
  • Reproductions are mass-produced and have no limit on their numbers. They are affordable but unlikely to produce any profit.

No matter which type of art you opt for, you should always make sure that it is in good condition – this can have a significant impact on the potential resale value. It is also a smart idea to get any piece you are considering appraised by an expert – this may incur a small initial charge, but paying a small fee now could prevent you from making a very expensive mistake down the line!

Remember The Risks

As with any other investment opportunity, investing in art does come with its share of risks, and it is important to be aware of these before you jump in. Art investment is not a way to make a quick buck – you can expect to sit on your pieces for several years at the very least,  before the chance comes to make a profit at auction. This is not a good option if you need to be able to liquidate your assets at a moment’s notice, or are looking for a fast return on your investment.

To help counter the risks, it is a good idea to diversify your art portfolio as widely as possible. Make sure that you are investing in pieces from a range of historical periods, a variety of artists, and a myriad of artistic styles and traditions. Even if one area of the art market takes a downturn, this strategy helps to ensure that you will still have value within your portfolio, and will still be able to enjoy a good return. You should also ensure that art is part of a larger overall investment portfolio – never place all your eggs in one basket.

It is also worth remembering that you may encounter fees when you decide to sell your piece – and especially if you decide to do so through an auction house. This means that it is super important to have your pieces appraised by experts, and make sure that you have done your research prior to purchase – this will allow you to maximize your profit and ensure that you get the best return on your investment.

Will I Make A Profit?

While no investment is ever guaranteed, purchasing art can offer a great profit – the 2017 Artprice list demonstrates the potential profit available in this area. One example, ‘Jim Crow’ (1986) saw the buyer sell for over 125 times the original price – the catch is that they had held onto the piece for around 25 years. This is also a growing trend; an increasing number of investors are opting to diversify their portfolio and expand their potential return. Increasingly, investing in art is becoming a smart, sound, long-term option that could net you a significant profit in years to come. The increased interest in this area is good news – it boosts the chances that you will succeed, and that the art market will hold its value.

Final Thoughts

Art investment is definitely a long-term plan, but one that can offer an incredible addition to your investment portfolio. If you are ready to put in plenty of effort, do your homework, and plan ahead, then this has the potential to be a great way to boost your long-term financial security.

Masterworks is a fintech company democratizing the art market. Our investors are able to fractionally invest in $1mn+ works of art by some of the world's most famous and sought-after artists.