Art Investment: A Complete Guide to Investing in Fine Art

Purchasing artwork has traditionally been motivated by passion: people bought art because they loved it. However, art has been attracting a different kind of attention recently, as an investment-worthy asset class in its own right. 

In this article, we’ll examine art investment as a method of diversifying your portfolio. You’ll learn:

• The basics of art investment
• The risk associated with art investment
• Strategies for investing in art
• The drivers of value in the art market

What Is Art Investment? 

Art investment is the practice of buying art to get a return on the investment. This strategy is different from regular art purchases in that personal taste doesn’t play as big a role as the various criteria that affect the artwork’s value. 

As an investment, art is considered to be a tangible alternative asset, which means: 

1. It typically has a physical form you can see and touch
2. It is not one of the traditional assets (stocks, bonds, and cash) and does not correlate with the movements on the financial markets

Because it’s not correlated to regular markets, art is often used to diversify a portfolio and make it more resistant to market changes. However, art also has its own set of benefits and risks, which it shares with other collectable assets such as wine or stamps, and which make it a risky asset that isn’t suited to every investor. 

Is Artwork a Good Investment?

Art is an interesting investment because its distinct profile of risks and rewards requires a specific kind of investor. 

Art’s ability to retain value even in times when stocks and bonds are underperforming is one of the major draws of the asset. Artworks also tend to appreciate over the long term, especially if created by recognised (blue-chip) artists.

There are also secondary, non-financial benefits that make art a good investment. The enjoyment in the aesthetic or cultural value of a specific artwork is an example, as is the prestige that comes with art ownership.

Risks To Understand Before Investing in Art

Of the risks associated with art investment, illiquidity is among the most important ones to consider. If you need quick access to capital, you’ll likely find that selling artwork can be a long and complex process. 

Other risks to understand before investing in art include: 

• Potentially high barrier to entry: Depending on the method of investment you choose, you may need specialist knowledge of the art world, as well as significant capital for the artwork itself 
• Significant transaction and ongoing costs: Expenses such as the buyer’s premium can increase the cost of purchasing an artwork, and storage, maintenance, and insurance generate ongoing costs
• No guarantee of appreciation: While art as an asset class does appreciate, there is no guarantee that the specific artwork you purchase will increase in value, or that it will do so within your expected time horizon
• Vulnerability to shifting trends: Art values are heavily influenced by taste, critical reception, and cultural relevance, all of which are factors that can change quickly

How To Invest in Art as an Asset: 3 Main Methods Explained

The three main methods for investing in art as an asset are:

1. Direct investment
2. Art investment funds
3. Art investment platforms

The following table shows you a quick comparison between the three methods:

Criteria	Direct Investment	Investment Fund	Investment Platform
Type of ownership	Full ownership	Pooled investment	Fractional ownership
Expertise required	High	Low	Low
Typical fees	Auction/gallery premiums	Management and performance fees	Platform fees
Best for	Collectors	Passive investors	Beginners

1. Direct Investment

The traditional method of investing in artwork—purchasing it directly—gives you full ownership of the artwork. It also places the burden of transport, storage, and insurance on you, increasing the costs of your investment.

This method also requires a deep understanding of the market and current trends. Alternatively, you can hire consultants to help guide your investment decisions, bridging the knowledge gap but adding costs. 

To look for art to invest in, you should visit:

• Auctions: Auction houses range from big international names like Sotheby’s and Christie’s to smaller, local establishments. They will typically display art before the auction, and will charge you a 10%–30% buyer’s premium if yours is the winning bid
• Galleries: Galleries display art for sale and often work with a specific artist, allowing you to invest in their work if you find it promising. You usually won’t be charged a buyer’s premium, and you might be offered additional services, such as tracking down specific artworks
• Specialised websites: Both auction houses and galleries may have websites where they run auctions and display art for sale. This method is convenient, even though it doesn’t allow you to be in the same room with the artwork you’re purchasing before it’s shipped 

In addition to using auctions, galleries, and online platforms to invest, you can also use them to exit your position when it’s time to sell.

2. Art Investment Funds

Art investment funds are typically structured like private equity funds, allowing investors to pool their capital and acquire a stake in a curated art collection. These funds are professionally managed and don’t require a high degree of either investment or art expertise, making them well-suited for passive investors. 

Another important benefit is that you are not personally responsible for storage, insurance, and the associated costs since you never take physical ownership of the artworks in the collection.

Here are some downsides of this investment method: 

• Your capital might be subject to a multi-year lock-up period
• You will be charged management fees and potentially performance fees
• Some funds might require you to be an accredited investor

3. Art Investment Platforms

Art investment platforms offer fractional ownership of artworks. After joining one of the platforms, you can choose available pieces and purchase shares in the ones you like. 

While this method still requires some knowledge of the art market, it has clear benefits: 

• You can acquire shares in blue-chip artists’ work at relatively low prices when compared to full ownership
• You’re not responsible for the transport, storage, or insurance of the artwork
• You might be able to sell your shares on a secondary market

On the downside, you should still expect to wait years before seeing any return on your investment. Some platforms might require you to be an accredited investor, and you will be liable for management expenses and potentially additional fees.

What Drives Value in the Art Market?

The main drivers of value in the art market include: 

1. Artist reputation 
2. Provenance and authentication
3. Art movement
4. Rarity and medium
5. Condition of the artwork

Artist Reputation

The work of artists recognised for their skill, contributions to culture, and influence on other artists tends to command higher prices than the work of newer artists who are yet to establish their footprint in the art world. 

The artist’s reputation is also a factor in determining the liquidity of your investment. If the artist has a strong collector base and institutional backing, that translates into a higher demand. Having a higher sales frequency by the same author can also provide a point of comparison when evaluating the artwork. 

Provenance and Authentication

Provenance is the artwork’s record of ownership and exhibition. Artwork with clear provenance can be sold for a higher value, with factors such as the reputation of auction houses and galleries, as well as the previous owners, affecting the potential value. 

Similarly, signs of authenticity can also affect the artwork’s value. For example, paintings that are signed or dated usually sell at a premium compared to those without any signs of authenticity. If paintings are of questionable authenticity, they might still sell, though at a discounted price. 

Art Movement

The art movement to which an artwork belongs can be a strong predictor of the returns the piece will generate. According to research from the Belgian Financial Forum, which covered nearly three million auction transactions over six decades, newer art movements tend to generate higher returns: 

Art Movement	Annualised Returns
Minimalism and contemporary art	12.88%
Pop art	7.93%
Neoclassicism	7.48%
Abstract expressionism	5.28%

Rarity and Medium

Scarcity generally supports an artwork’s long-term value, since fewer available works increase buyer competition. Prints are a clear example: small editions hold value better than open editions, while rarer subsets, such as artist’s proofs, tend to outperform both. 

The medium of an artwork also has an important role in determining its value. For example, a painting is likely to command a higher price than a print from the same artist. And even within paintings, there will be a difference in value between oil and acrylics, for example, and watercolours and gouaches.

Condition of the Artwork

The condition of the artwork directly affects its price. Well-preserved pieces will command higher prices, while any signs of damage, restoration, or poor conservation can significantly reduce the value. 

While examining the artwork before purchase can give you insight into its condition, documentation such as condition reports and appraisals can provide a more accurate picture of the artwork’s state. This can be especially important when purchasing art online.

Looking Beyond Art for Portfolio Diversification

Most alternative assets will help you diversify your portfolio and protect it against market fluctuations. You can also achieve other specific goals, such as: 

• Generate income, with assets such as real estate, private infrastructure, or certain types of private credit
• Generate increased returns, with assets such as private equity and distressed private credit
• Hedge against inflation, with assets such as timber and real estate

Another approach to diversification worth noting is jurisdiction diversification. It involves investing in assets that are physically or legally held abroad, which can help them retain their value and serve as a lifeline in the event of market or financial disruptions in your home jurisdiction. 

One popular method of gaining exposure to foreign assets is purchasing real estate abroad, as it offers the same benefits of real estate ownership in your home jurisdiction, such as potential for rental income. It can also have additional benefits, such as granting you residency rights.

Read more: If you’re interested in purchasing real estate abroad, check out our guides on property investment in Latvia, Panama, Turkey, Cambodia, and Mauritius, and explore countries with no property tax.

Purchasing real estate abroad, or making any other investment in a foreign country, will require you to navigate local laws, regulations, and a market you might not be familiar with. This is why it’s advisable to work with professionals who are versed in cross-border regulations and local market frameworks. For assistance with making investments abroad, contact Nomad Capitalist. 

Invest in Assets Abroad With Nomad Capitalist

Nomad Capitalist is a consulting company that offers global mobility and wealth preservation services. We’ve helped more than 1,500 clients build an international lifestyle and protect their wealth by: 

• Capitalising on investment opportunities abroad
• Obtaining a second residency or citizenship
• Leveraging legal methods to reduce tax exposure

Our core service is the Action Plan, a step-by-step blueprint for achieving your financial and lifestyle goals. We develop each Plan in close consultation with our clients: we use their unique circumstances as a starting point and their desires as our target, and we develop a strategy to get them from point A to point B in the most efficient way. 

Here’s what partnering with Nomad Capitalist looks like: 

1. We ask you to fill out a form to help us determine whether we’re a good match
2. We schedule a 45-minute onboarding call to learn more about your situation and goals
3. Our agents create the Action Plan and present it to you for approval
4. We implement the Plan over a 12-month period and manage the administrative parts
5. You continue receiving support from us even after the Plan is implemented

To help you diversify your portfolio, we can suggest investment opportunities in tax-efficient countries. We can also advise you on additional implications of these investments, as they might allow you to become a resident of the country, or even a citizen. If you decide to pursue legal status in a foreign country, we can also help you manage the process. 

To learn more about what we can do for you, contact Nomad Capitalist today!