From Street Art to Digital Art: A Guide to Investing in the Art Market

Posted on October 30, 2023April 26, 2024 by investinternals

Introduction: Beyond the Canvas: Exploring Alternative Investment Options in the Art World

Art can be considered an alternative investment due to its potential for high returns and historically low correlation to traditional markets 2 3. Here are some examples of alternative investments in the art world:

Private Equity Funds: Private equity funds are developing in the art market, such as Masterworks 1. These funds allow investors to pool their money to invest in a portfolio of artworks, providing access to the art market for a wider range of investors.
NFT Art: Some investors are picking potential winners in the new NFT art market, which has gained popularity in recent years 1. NFTs represent ownership of digital art and have created a new avenue for art investment.
Art Funds and Collective Investments: Art funds and collective investments are another way for investors to access the art market. These funds pool money from multiple investors to invest in a diversified portfolio of artworks 4.
Shares in Artwork: Investors can also purchase shares in individual artworks, allowing them to own a fraction of the artwork’s value. This approach can provide more liquidity and flexibility compared to owning the entire artwork 2.
Diversified Portfolio Strategy: Adding a small allocation of art investments to a portfolio of stocks and bonds can reduce the portfolio’s exposure to market volatility and provide a smoother return profile 6. This strategy involves investing in a mix of different asset classes to spread risk and potentially increase returns.
Digital Art and NFTs: Digital art and NFTs have gained popularity in recent years, offering a new and potentially lucrative form of art investment. Digital art can be easily bought, sold, and stored, making it more accessible to a wider range of investors5.
Street Art: Street art, which includes murals, graffiti, and other forms of public art, has also emerged as an alternative investment. Street art can be bought and sold, and its value can increase over time, especially if the artist gains recognition and popularity 4.

How to Determine the Value of an Artwork for Investment Purposes

Investing in artwork can be a lucrative alternative investment strategy, but determining the value of an artwork for investment purposes can be challenging. Here are some methods to help you evaluate the potential value of an artwork:

1. Research the Artist

Look for information about the artist’s background, education, and training.
Consider the artist’s reputation, recognition, and awards.
Examine the artist’s exhibition history and the venues where their work has been displayed.

2. Analyze the Artwork

Evaluate the artwork’s condition, materials, and craftsmanship.
Consider the artwork’s size, complexity, and subject matter.
Examine the artwork’s uniqueness, originality, and innovation.

3. Study the Market

Research recent sales of similar artworks by the same artist or in the same style.
Look for trends in the art market, such as increasing demand or changing tastes.
Consider the availability of the artist’s work and the level of competition among buyers.

4. Consult Experts

Seek the advice of art appraisers, dealers, or consultants with expertise in the artist or the specific artwork.
Join art investment groups or networks to connect with other investors and share insights.
Attend art fairs, auctions, or gallery openings to learn from industry professionals and experienced collectors.

5. Diversify Your Portfolio

Invest in a range of artworks, artists, and styles to spread your risk.
Consider investing in other alternative assets, such as wine, collectibles, or real estate.
Monitor and adjust your art investment portfolio regularly to take advantage of changing market conditions.

What are Some of the Most Popular Art Investment Strategies

Here are some of the most popular art investment strategies:

Buy and Hold Strategy: This strategy involves purchasing art pieces and holding onto them for an extended period, with the expectation that their value will increase over time 1 3.
Diversified Portfolio Strategy: Some investors may look to art as a way to diversify their portfolio away from traditional stocks and bonds. This strategy involves investing in a variety of art pieces, artists, and styles to spread the risk 3.
Value Investing Strategy: This strategy involves identifying undervalued art pieces that have the potential to increase in value over time and purchasing them at a lower price 1.
Art Funds and Collective Investments: This strategy involves investing in art funds or collective investments, which pool together money from multiple investors to purchase art pieces. It allows investors to invest in art without having to purchase an entire piece themselves and can provide access to a wider range of art pieces 1 3.
Choose Your Artist: It is a good idea to choose your favorite category of art and stick to it with your investment options, rather than attempting to specialize in a range of different areas. This way, you can become knowledgeable about a specific part of the field 4.
Invest in Artwork You Enjoy: If you invest in artwork that makes you happy, at the very least, you’ll own something you can enjoy, which is one of the key benefits of investing in art 2.
Invest in Emerging Artists: Investing in emerging artists can be a way to potentially acquire valuable art at a lower cost 5.
Invest in Non-Traditional Art Forms: Non-traditional forms of art, such as street art, digital art, and NFTs, have gained popularity in recent years and can offer unique investment opportunities 3.

It is important to note that investing in art is a risky endeavor, and investors should not expect huge returns, even from a diversified collection of works. Additionally, purchasing art comes with additional costs, such as storage, insurance, and commissions 1 2.

What are the Risks Associated with Investing in Art

Investing in art can be a lucrative endeavor, but it also comes with risks that are not present in more traditional investments. Some of the risks associated with investing in art include:

High costs and fees: Art acquisition comes with considerable extra costs, such as commissions and insurance 1 3.
Lack of investment income or dividends: Unlike stocks or bonds, art does not generate regular income for investors 1.
Prevalence of counterfeits: The art market is plagued by forgeries, making it difficult for investors to ensure the authenticity of their purchases 1.
Greater than average risk of destruction of the assets: Art is susceptible to damage, theft, and accidents, which can significantly impact its value 2.
Non-liquid asset: Art is not easily converted into cash, so investors may face challenges if they need to sell their pieces quickly 4.
Fluctuating value: The value of art is influenced by various factors, including commercial, social, and intrinsic value, as well as the condition and original purchase price of the artwork 1. Artists and their work can go in and out of style, affecting the resale value and return on investment 3.
Limited information and transparency: The art market is often described as a “black box” due to the lack of in-depth data and the private nature of many art transactions 2.
Difficulty in evaluating and predicting trends: It can be challenging to determine which art will appreciate and how much it will appreciate, as trends and popularity in the art market can change over time 1 3.
Forgery, theft, or damage: There is always a chance of forgery, theft, or damage to art, which can result in a significant loss for investors 3.

To mitigate these risks, investors should consider working with art investment advisors, buying from reputable sources, understanding what makes an artwork valuable, and having a long-term view 4. Additionally, investors should be comfortable with the risks involved, have a plan for storage and maintenance, and be prepared for the potential challenges of selling art if needed 4.

How to Determine the Authenticity of an Artwork Before Investing in It

To determine the authenticity of an artwork before investing in it, consider the following steps:

Research the artist: Start by researching the artist who created the piece. Learn about their style, technique, and any unique characteristics of their work that can help you identify their original pieces 5.
Examine the medium and materials: Inspect the piece for the type of medium and materials used. Original artwork is typically created using high-quality materials that are specific to the artist’s style and technique 5.
Check for signatures or markings: Look for the artist’s signature or any distinctive markings that may indicate the piece’s authenticity. Keep in mind that some artists may not sign their work, so the absence of a signature does not necessarily mean the piece is not original 5.
Investigate the provenance: Provenance refers to the history of the artwork, including its ownership, exhibition history, and any related documentation. Researching the provenance can provide valuable information about the piece’s authenticity and help you determine if it is an original work 5.
Consult an expert: If you’re still uncertain about a piece’s authenticity, consult an art expert or appraiser who can help you determine if it is an original work. They can provide a more in-depth analysis of the artwork, its provenance, and its place in the artist’s body of work 5.
Consider the artist’s reputation and the gallery: A good art dealer and gallery can have a big effect on an artist’s reputation and the value of their work. The more respected the gallery and their curatorial opinion, the better the artist they will represent, and the more valuable the artist’s work. This will also influence the career of the emerging artist, even if the work is not highly priced 6.
Be cautious of Certificates of Authenticity: While a Certificate of Authenticity can be a helpful document, it is not foolproof. Some forgeries may come with fake certificates, so it’s essential to verify the authenticity of the certificate itself and contact the artist or organization that issued it if necessary 3.

By following these steps, you can make a more informed decision when investing in art and ensure that the artwork you acquire is authentic and valuable.

How to Identify Forgeries in Art

Identifying forgeries in art can be a challenging task, but there are several methods that can help determine the authenticity of an artwork. Here are some ways to identify forgeries in art:

Research the artist: Start by researching the artist who created the piece. Learn about their style, technique, and any unique characteristics of their work that can help you identify their original pieces 5.
Examine the medium and materials: Inspect the piece for the type of medium and materials used. Original artwork is typically created using high-quality materials that are specific to the artist’s style and technique 5.
Check for signatures or markings: Look for the artist’s signature or any distinctive markings that may indicate the piece’s authenticity. Keep in mind that some artists may not sign their work, so the absence of a signature does not necessarily mean the piece is not original 5.
Investigate the provenance: Provenance refers to the history of the artwork, including its ownership, exhibition history, and any related documentation. Researching the provenance can provide valuable information about the piece’s authenticity and help you determine if it is an original work 5.
Consult an expert: If you’re still uncertain about a piece’s authenticity, consult an art expert or appraiser who can help you determine if it is an original work. They can provide a more in-depth analysis of the artwork, its provenance, and its place in the artist’s body of work 5.
Stylistic and technical analysis: Stylistic analysis involves examining the artist’s style, flair, and verve unique to themselves, and this can be recognized. Technical analysis involves examining the materials, brushwork, and composition of the artwork 3.
Check for layering: An original piece of art will have quite a few layerings that would be visible to you with naked eyes. A fake one just fails to show depth 6.
Get the painting appraised: Getting the painting appraised by a professional can help determine its authenticity 6.

By following these methods, you can make a more informed decision when investing in art and ensure that the artwork you acquire is authentic and valuable.

Conclusion

Art is an exciting and potentially lucrative alternative investment that offers diversification and the potential for high returns. Unlike traditional investments, art is a tangible and familiar asset that can provide enjoyment and aesthetic value to its owners 1.

The art market has witnessed sustained demand, limited supply, and the ability to endure economic downturns, making it an attractive option for investors 1. Art investments can improve risk-adjusted returns by providing portfolio diversification, as they are largely uncorrelated with other asset classes 3.

However, it’s important to note that art investment returns are not guaranteed, and investors should be selective, diversify their collections, and hold pieces for the long term 4. Art can be purchased upfront or through shares, and investors should consider factors such as maintenance, insurance, and storage when investing in art 2. As the art market continues to evolve, new investment opportunities such as NFTs and private equity funds are emerging, offering investors different ways to participate in the art market 5 6.