Mega-auctions of art in New York and other key locations paint a picture of a burgeoning art market that could outpace more traditional asset classes. In 2019, a 10.6 percent return in the art market was revealed as other categories were outdone. This leaves many wondering what the secret sauce is of this unique sector and what the strategies are for making a lucrative art investment.
Profiting in a $60 Billion Market
In recent years, the value of art sales has increased, passing $60 billion. Most collectors and buyers who purchase art for the purpose of collection may also consider it for investment purposes. Supply and demand determine the value of the artwork. Art which is rarer and considered as high quality is likely to be priced higher than other artwork.
It is important to establish a trail between the creator and the owner of the artwork. There are different online mediums that help make the process easier. Traceability gives new buyers more confidence in the value of artwork. As a result, they are more likely to pay more for it.
Art Investment Provides A Hedge Against Inflation
During times of high inflation, art has maintained its value and even increased. Over the years, more people have come to appreciate it as a hedge against inflation. As more people shy away from cash, it has become apparent that there is a limited amount of things that can be invested in. High-quality artwork is more likely to outperform lower-quality works during periods of inflation.
Many investors consider auctions to be one of the most cost-effective ways to purchase art. This is due to the fact that retail prices are usually set at a high premium. Investors also stand to gain from the sale of art at auctions. The Scull auction of 1973 played a significant role in setting the precedent for art auctions. Prior to the sale of $2.3 million worth of works at the auction, few people could imagine that collectors could make so much.
Art Investing in the U.S. and China
The United States and China account for the majority of auction sales in the art sector. The U.S. constituted 35 percent of auction sales, while China was responsible for 33 percent. Activities in these markets are the driving force behind price trends in the art sector.
With as little as $10,000 you can invest in artwork. However, artwork that costs $10,000 is highly unlikely to make you a ton of money. The chances of making millions from artwork that costs 5 figures have been likened to winning the lottery. This shouldn’t be a reason to not buy artwork, but if you are doing so for profit you should think twice. There’s a chance your piece of art may not appreciate in value at all. Even with five-figure investments, you may only make around $1,000 (and it could take years).
There are still advantages when purchasing art even with four-figure investments. Surveys reveal that the average price at which works of art are bought is around $5,000. Very few people have been reported buying art for over $1 million.
Those that have invested considerably more money into art have benefited from over 100% growth in the value of their investments. Case in point, pieces of work valued at over $10 million increased by 148 percent over 10 years.
Before you buy anything though, be sure to do your research. Find out if anyone else is benefiting from an art investment you’re looking into. You may even want to consult a professional or check out the information provided on Masterworks, an art investment platform.