Why you should invest in art

Since 2020, with the global Covid crisis, lifestyles have completely changed. Safe havens have changed. Buying art has become an interesting alternative for investments. We have entered an era of high variability of goods, like cryptocurrencies. Under such circumstances, investing in art attracts the attention of wealthy people. However, the question of financial investments in works of art also arises for small investors, because the art market is changing rapidly.

Gallerists will tell you that buying art is an emotional decision. But, if you view it as an investment, then look for one or more living artists that catch your eye. Discover their journeys, and follow their careers. Visit museums, galleries and art institutions regularly to identify promising artists. Look for quality. With a little effort, you could find yourself a masterpiece. We will clarify in this article the advantages and risks of this particular investment. How to start investing in art? What are the most popular artistic styles? We will try to answer these questions.

What is investing in the art market?

It is important to understand that art produces an asset class that is weakly linked to the health of our capitalist economies. Art has become a safe haven for many investors, for example, with precious metals. When tensions in the global economy appear, we see a renewed investment in the works of well-known artists.

This means that if you are well advised, and you buy the right work, then you will be likely to resell it at a price equal to or higher than the initial investment. Many investment advisors diversify their clients' portfolios by adding investment in art.

Things are moving. Many people appreciate art. They like to visit exhibitions or go to museums. This form of tourism is clearly increasing. The upper middle class no longer hesitates to buy art for pleasure, but also as an investment. This is especially true in China, where young people in their thirties call themselves art collectors and allocate a substantial budget to invest in art.

Art, an attractive investment and a safe haven

Compared to other high net worth investments (watches, wine, etc.), art is easier to store with more opportunities to sell at auction. Online auctions are becoming more widespread among auction houses of all sizes. This is an effect of the pandemic!

Traditionally, during financial crises or uncertain periods, investors tend to turn to so-called “safe haven” values. The objective is to maintain assets through investments that are not correlated to the markets. The art market does not follow stock prices. It is therefore less affected than other assets.

If China, Europe and the United States are seeing an increase in transactions, Japan, like other countries, still remains cautious. However, the trend is towards the generalization of this type of investment. It is driven by major collectors who continue to get richer. All great collectors share a common denominator, the deep passion for the works that attract them. But they don't forget the profitability.

In the current context, should we invest in safe havens?

War in Ukraine, crisis in Taiwan, exit from Covid, shortage of raw materials, everything is leading the world economy towards inflation and a slowdown in global growth.

A rise in interest rates, which has already begun, has a negative impact on many short-term assets such as bonds. The loss of household purchasing power is also worrying. In this context, art allows for diversification of heritage. That's the whole point of a safe haven.

The second art market

We speak of a second market in the art world when there is resale. Transactions generally take place via auctions. But also in galleries or over the counter.

The works for resale come from listed artists who have already sold at public auction, and thus been able to obtain a rating. The weight of the secondary art market is around 40% of the total art market. This shows its importance. It allows investors to transform their acquisitions into liquidity and renew their collections.

Benefits of investing in artwork

Works of art have an appeal that financial products do not have. The popularity of assets in art is strong among living artists of great renown. It is also an investment with heritage value that can be passed on. In some countries, the art market benefits from tax advantages. Investing in art is therefore a very interesting way to reduce your taxes.

The popularity of real assets is strong

Looking at the world from a global perspective, investors are wondering which investment sectors are likely to be stable. The upward and downward volatility of many assets is hardly reassuring. The value of unique art objects always tends to rise. This was the case even at the height of the pandemic. Rarity is then a guarantee of stability. The more people who are interested in a work, the more its value will increase. Regarding contemporary art, if an artist sells well, it is not uncommon for their value to increase by a factor of 50. Despite a significant increase in recent years, there are only a limited number of artists !

An investment less sensitive to a decline

Works of art would be less subject to falling prices due to their rarity. Unlike some assets, even if prices fall, the value never goes to zero. Even more than gold, which is a good linked to production, works of art are unique and part of limited inventories.

A fast-growing sector

The art market has become a very fast-growing sector. Global private financial wealth is increasing sharply. Asia is showing the most rapid development. In 2002, no Chinese artists were on the list of leading contemporary artists. In 2022, there will be nearly fifty with a significant increase in the contemporary art market in China. It now represents 25% of global turnover, as much as the United States.

Risks and Disadvantages of Investing in Art

Could we say that there is no risk when investing in art? The answer is no ! Investing in art carries risks, as the value of a work of art is also subjective and may decline. Even if there is a second art market, resale remains random and risky. It is not uncommon to see artists rated at one time whose rating is decreasing and sometimes significantly at another. Therefore, it is imperative to monitor the artist's notoriety following an acquisition.

Investing in art should only represent a tool for financial diversification. The emotional aspect does not go well with asset investment. Note that there are sometimes happy marriages!

Risk of depreciation of the work

As a rule, there is no risk of a significant price collapse in the art market, but a drop in prices can nevertheless occur in the 10-20 year phase.

There are two price reduction patterns:

When the popularity of an artistic movement declines.

For example, at present, the popularity of pop art is not waning despite the appearance of other contemporary styles. But no one can predict the future of a contemporary artistic movement.

When the popularity of the artist declines (especially in contemporary art)

It is difficult to judge whether the price of a work by an artist whose value has increased significantly in a few years will remain stable or continue to grow. Some galleries invest excessively in communication about one of their artists in order to artificially increase their rating. We must therefore remain cautious.

Pay attention to the emotional aspect.

The thing to keep in mind is that it's important to consider the resale value of a work when investing in art. Buyers tend to overvalue their acquisition simply because they fell under the spell of the work. Some galleries charge prices that are far from the artist's actual price. Also pay attention to the staging of reputable auction houses. The marble and gilding of prestigious places should not influence your choice. Small sales rooms are sometimes preferable. Never be emotional. “The auction winner’s curse” is not an illusion. A good solution is to seek advice from a professional.

Risk of deterioration over time

Works of art are little subject to damage. A work is designed by definition to last 99 years. However, contemporary works are sometimes made with fragile and perishable materials. It is particularly advisable to find out about their durability. In this sense, UV rays are formidable over time. So please consider the possibility of deterioration over the years. How long should I hold the work and how much should I invest in it? This is a question worth asking.

Block your capital

Investing in art also means agreeing to block capital over time which will provide no return and whose resale, with a capital gain, is uncertain. You nevertheless have the possibility of reselling on the secondary market.

Finally, do not neglect the cost of preserving the works (insurance, maintenance, physical protection, etc.). Deterioration due to time is not covered by insurance. Therefore, make sure to store your artwork in a dark place, away from high temperatures and humidity.

How to start investing in art

Online art galleries

It is a method of selling art that is developing and becoming more professional. Distrust is nevertheless essential. As a general rule, prefer online sales galleries that are in contact with art fairs.

For several years, it has become possible to buy art online via Internet sales portals. It is thanks to the computerization and security of payment methods on the Internet that this trade has developed. The art world has not escaped these new ways of marketing works of art. Online art galleries now represent a significant part of the art trade. Some feature works by renowned and highly rated artists. It is therefore a practical way for art investors to diversify their portfolio. This direct contact with buyers allows a more detailed approach to the art market. Information circulates better. Online sales are set to develop in general, but also for investors of all sizes.

Traditional art galleries

Finding a good gallery owner is a solution, because they can give you good advice.

It is reassuring to partner with a professional, the success rate of your investment will increase depending on their notoriety. There are many gallery owners in Western countries who are actively involved in art fairs. They are in direct contact with the art market and likely to unearth new talents which will increase in value over time. Some galleries also operate in the secondary market. Thus, they represent a good alternative for an informed acquisition.

Auction establishments

There are different auction houses around the world and they boost the market with media events. Fees vary from auction house to auction house, so take the right information before you decide to buy.

Gallerists and art professionals generally give good advice on upcoming auctions. They are sometimes essential intermediaries. Auctioneers are excellent experts and capable of evaluating your already acquired goods before possible resale. The profession is very regulated. The information provided before each sale is reliable. Through the Internet, you can participate live in many sales around the world. This increases your potential for good deals.

How to participate in an auction?

- Online participation (from apps and shopping sites)

- Advance auctions (reservation auctions are possible in advance). Early bidding is recommended in case of time differences.

Recommended styles for artistic investment

The art of the past

Ancient art is well documented. The most renowned masterpieces are in museums or belong to very wealthy collectors. They are very rarely offered for sale. Therefore, it is advisable not to intervene in this insider market.

Great artists who were students of great masters in their time, such as Jacqueline Duhême, a student of Henri Matisse , are beginning to be prized on the art market while remaining at affordable prices. It could be a good alternative to invest in the art of the past.

Contemporary art

You have a wide choice of living artists.

Contemporary art represents 20% of the market compared to 3% in 2000. Contemporary creation has resisted the pandemic well. In addition, an acceleration in online sales should be noted. On the other hand, digital works, with the advent of NFTs, are seeing their prices soar. However, be careful of the fashion effect!

How much can you earn by investing in art?

No limits exist in the profitability of art. Specialists agree that on the art market, a work worth €10,000 to €30,000 is likely to produce an annual return of 9%. For works worth €50,000 to €100,000, the return can be 12% to 15% and above €100,000 it is even higher.

New talents who benefit from a certain notoriety, even if they are not yet recognized, generally see their rating increase quickly. A purchase for €10,000 can, in the space of a few months, end up with a value of €50,000. It should be noted that the risk of loss is just as great.

Art advice

Art is a difficult field to understand. Plus, it's easy to make mistakes that can cost you dearly. And that’s without counting on the disappointment of a choice that doesn’t suit you. For these reasons, and even more concerning financial investments in works, working with an art advisor is really not a luxury.

Our article “ art advice ” will give you more information on this subject.

Contrary to popular belief, investing in art is possible for small investors. For a few thousand euros, you can acquire a work by a listed artist, particularly in the field of photography. However, vigilance is required. Art requires a solid understanding of its mechanisms, because it is a market for connoisseurs. Despite everything, it becomes a powerful alternative for diversifying one's assets.

Before committing to this form of investment, everyone should seek advice from specialists in purely artistic fields, but also in finance.

Investing in art remains risky for those who do not master the subject. For the most daring, art has become an excellent method of enriching oneself. You still need to acquire good knowledge and be well advised.

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