Around the world, billions of dollars are exchanged for art. The elite class continues to expand, further deepening the pools of investments in the art markets. Additionally, 73 percent of wealth management clients exhibited the intent to include art in their portfolios. What this means is that even in the face of slow economic growth and reduced purchasing power of most households, the future value of the markets will continue to grow. But is investing in art a good idea?
The Burgeoning Art Market
Studies reveal that 1 percent of the world’s population controls over 60 percent of the assets in the world. In 2018, over 150 people joined the list of billionaires. The list of millionaires also had significant additions.
The United States and China have contributed significantly to these lists of wealthy people. Thus, it is no surprise that individuals listed also control over 30 percent of the world’s art markets. As these two economies continue to set the pace for the world’s economic stage, investments in the art sector are likely to continue growing.
That’s not to say investing in art is for everyone. As mentioned, mostly only wealthy people are able to make any money in the art sector. On average, art investments provide a return of about 10.6 percent. You’ll need a $10,000 base investment to make $1,060 – and those returns won’t happen overnight (if at all). Not every investment in art will appreciate in value.
How to Benefit from Art Investments
One can gain not only from the value of an artwork but also from the tax deductions that come with owning it. Small businesses that have less than 10 million in turnover may get a 100 percent tax deduction allowance. A $30,000 deduction limit may be set on each deduction. This can help businesses save a huge amount of money.
During periods of high inflation, art can also serve as a good hedge against the falling value of the currency. Art investors find that during times of inflation, the value of their investments may actually rise. As an example, a painting sold for $500 in 2007, was sold for $635 in 2017.
Is Investing in Art a Good Idea?
That’s not to say investing in art is without its challenges. One of the greatest problems faced by investors in the art sector is that the market is illiquid. Many owners of art find it difficult to quickly convert the artworks into cash while also making reasonable profits.
Investing in art provides one with valuable experience that can be transferred to other collectibles. Practical experience in the sector is gained through the losses and the wins. With lessons learned from investments in art, one can be better prepared to make investments in other equally profitable collectibles.
Masterworks is working to solve this problem by enabling buyers to purchase shares in art. It offers investment options in works by notable artists from around the world. The organization collaborates with the Securities and Exchange Commission to ensure investments made are in pursuance of regulatory requirements.
The organization has a team of experienced researchers to help investors be better informed about the works that they invest in. This can help address one of the major pain points in the industry – information asymmetries. While investors in the stock markets can use indexes to understand historical risks and returns, the information in the art market is not as easily available. Being in the know can make all the difference when it comes to making a profitable investment in art. Masterworks is making it easier to access information on the industry.