Ever since the coronavirus pandemic, the stock market has been incredibly volatile. It feels as if every single government safety mandate sends shockwaves through the entire market. Due to this increased volatility, many investors are taking another look at alternative assets. Specifically, investors are taking a deeper look at how to invest in art.
As an alternative asset, art has come a long way. For years, art investing was really only available to high-net-worth individuals. It was something you only did after you already invested millions in stocks and real estate. These days, investing in art is much more accessible. Let’s take a closer look.
Why Do People Invest In Art?
Art is an alternative asset. Most investors mainly use traditional assets like stocks, bonds and cash alternatives. Alternative assets, on the other hand, are other objects whose value can increase over time. A few examples of alternative assets are commodities, precious metals, diamonds, watches, classic cars and artwork. The markets for alternative assets are usually a little bit less defined when compared to stocks.
Recently, art investing has gone through a major transition. This transition is mainly due to the rise of NFTs. NFT stands for non-fungible token. These are digital tokens that can represent almost anything. Most often, NFTs are used to represent pieces of artwork. NFTs have completely changed the world of digital art. This is because NFTs rely on blockchain technology. Blockchain technology makes it nearly impossible to replicate an NFT.
With that said, let’s dive into what benefits you can expect when investing in art.
Pros Of Investing
- Diversification. Art is a great way to diversify out of stocks, bonds and real estate. Additionally. government regulations and Federal Reserve meetings don’t really impact art prices. This means that rising interest rates wont crash your investment.
- It can offer higher returns than you’d expect. Masterworks estimates that the annual appreciation of artwork is 13.6% since 1995. On the other hand, the historical average return of the S&P 500 is approximately 10%. Obviously, your returns can vary greatly if you invest in individual pieces of artwork.
- You own a piece of history. When you buy an original Picasso or Van Gogh you are buying a piece of culture. In many ways, this is much more attractive than owning a portfolio of stocks. Additionally, high-end artwork is actually fairly stable in terms of its price. Even the biggest companies in the world could eventually go bankrupt. However, it’s hard to imagine a scenario where people suddenly stop considering a famous piece of fine art valuable.
- Owning artwork is fairly cheap. …….