Is Art a Good Investment?
A no-nonsense guide on the myths and realities around investing in art.
Part of our Art Buyers’ Questions, Answered series.
Intro
The art industry has a perception problem. Draped over its body, soul, and beating heart—aka most working artists, arts workers, and small to mid-size galleries—is a dazzling ball gown that conceals everything beneath it. This flashy outfit emanates the qualities most outside observers associate with the “art world”: glamour, unattainability, and—most conspicuously—money.
Consider the most recent art-related news item that made it to your screen. If you’re not regularly plugged into art, chances are it was the Banana taped to the wall that sold for $6.2 Million at Sotheby’s. Or, if not that, some other jaw-dropping price that a Mondrian, Rothko, or Monet piece sold for at auction. Chances are it was not a critically-acclaimed exhibition that a gallery in your city was hosting, or a prestigious prize that an emerging, talented artist from your country was awarded.
The stratospheric price points in the flashiest category of art naturally result in many folks making a blanket assumption that you can make a lot of money if you invest in original art. But there is a LOT more nuance to this simple assumption that few people in the art world (even smaller galleries or lesser-known artists) are willing to divulge, as the perception of art being a “good investment” across the board helps with their own sales efforts.
Luckily for you, we prefer to be straight-up with buyers. So here is a BS-free report on the myths and realities around investing in art. Enjoy!
Table of Contents
Artwork by Chelsea Brant
The Philosophy of art buying
Let’s start with the big picture. Before buying original art, prospective collectors should ask themselves a simple question: Why do I want to own art? There are no right or wrong answers here (unless you’re buying it with the sole purpose of destroying it, which would be weird). The reasons might be any of the following, and more:
I want to decorate a space.
I want to demonstrate my excellent taste.
I want to own beautiful, handmade things that move and inspire me.
I want to connect with artists I love.
I want to support the local / international / global arts ecosystem.
I want to have a culturally respectable / relevant art collection.
I want to own art that will appreciate in value that I can profit from.
For most people, more than one of the above will apply. Having a clear vision of these priorities should impact your approach to browsing, researching, and executing purchases—also, who you collaborate with while doing it. But that’s for a different report.
Now maybe you’re wondering—how does this relate to investment? Well, if the final bullet in the list above (I want to own art that will appreciate in value that I can profit from) is the dominant or only reason you’re looking to buy art, and you’re not super interested in art for any other reason, there are probably better (safer, smarter, more straightforward) investment vehicles available, ***UNLESS*** you are wealthy enough to afford blue chip art.
Blue Chip Art?
With the term blue chip art, the art industry borrows language from the stock market (blue chip stocks) to refer to high-value artworks by established, culturally significant artists with a consistent track record of high auction prices and enduring collector demand.
Mark Rothko is an example of a blue chip artist.
When people think about the massive investment potential of art, they are usually referring (knowingly or otherwise) to blue chip art. It tends to be an excellent investment. Not only does this category of art tend to reliably increase in price, but it has a reliably active resale market—meaning you can offload the work to a willing buyer via art dealers or auction houses when you wish to sell it. It is also often described as “non-correlated” with traditional markets like stocks, and can therefore act as a hedge in periods of downturn.
If you have access to owning blue chip art—in other words, if you have 6 or 7 figures of cash lying around and some contacts in the art world—then you probably should. You don’t even need to be super knowledgeable about art; you can get away with treating it largely as an investment vessel (not that we condone this… just saying).
For the rest of us—the 99.9% of the population that doesn’t have access to blue chip art—step one in the art collecting journey is to dispel ourselves of the illusion of a probable financial ROI (Return on Investment) that only tends to apply to blue chip art.
How should we think about art collection & investing? As a labour of love.
The Critical Questions to Ask RE: an Artist’s Investment Potential
If you’re not buying blue chip art, as we’ve established above, but you’re still seeking an eventual financial ROI from your art purchases, you should ask yourself two questions about any artist you’re considering an investment in:
- Does the artist have an active resale market?
- If not, could you see the artist having an active resale market in the future?
Why are these questions important?
Well, if you ask most small or mid-size galleries about the investment potential of an artwork, their response will typically be related to the artist’s steadily-rising price point. They will point at the piece you’re interested in and say something like, this artist’s prices have risen 10% in the past year. The dealer is not lying—the price probably has risen by 10%—but this information is not helpful on its own when assessing the investment potential of the work. What the dealer will usually NOT mention, but what needs to be verified, is whether the artist has (or is on the way to having) an active resale market, which means that there is (or will be) active demand by collectors to purchase previously owned work by the artist. This is a strong signifier of demand. It means that the artist’s work is (or will be) too hard to access on the primary market because it sells too quickly, the prices are too high, etc.
Remember that artists are working professionals. Each year they become more skilled, and the value of their labour increases. Accordingly, they raise the prices of their work over time—especially if people are regularly buying it. The price point of an artist whose work you own may have gone up by 20%, but if they lack name recognition and an active resale market, a prospective buyer will prefer to purchase their new work through a gallery, or from the artist, than outdated work from you—unless you provide a heavy discount, in which case it was not a good financial investment!
Luckily, art resales via auction houses are publicly reported, and there are many databases such as Artnet that document resale prices. A good rule of thumb: if you Google an artist’s name and can’t find any info about auction / resale info on the first page or two pages of search results, the artist probably does not have an active resale market.
If the artist doesn’t have an active resale market, fear not! The overwhelming majority of artists do not, and the ones who already do are out of most people’s price range. For art investors whose budget is not 5, 6, or 7 figures, the game is all about buying the work of an artist who is likely to have an active resale market in the future.
Factors to Look out For
There are numerous factors that contribute to an artist’s career trajectory, all of which dictate the demand of their work and, as a result, the potential activity of their resale market. Here are some key questions to be considered. An artist you’re interested in may not meet all of these requirements (if they do, they’ll already be too expensive), but if they meet a few of them, it could be a sign to invest early.
*We want to stress that the factors below should not be used to determine the overall merit of an artist’s output. Career goals vary widely between artists. Some want to create work privately, in peace, others want to be in the MoMA one day—and everything in between. The below factors simplify art-looking into a very narrow lens of investment / resale potential, purely for the purposes of this report.*
1. Do you love the work?
Investing in art disinterestedly, purely for the sake of financial ROI, is likely to disappoint you unless you can afford blue chip art. Art is a high-risk investment. You should only make a purchase if you are willing to own it and love it if the investment doesn’t pan out financially. Don’t love it? Don’t buy it. End of story.
2. How much stock does the artist have available on the primary market?
If there always seems to be lots of work for sale through their galleries and/or their private channels, the artist / gallery is not succeeding in (or doesn’t care about) creating an environment of scarcity around their work. Scarcity of access to the work is necessary for the eventual development of an active resale market.
3. Does the artist have a dedicated following?
Name recognition goes a long way. Check the artist’s socials and visit their exhibitions to get a feel for how large and dedicated their following is.
4. Is the artist showing consistent signs of development?
The artist’s website, socials, or gallery page should indicate regular exhibitions with commercial galleries or at art fairs, consistent production of varied, high quality work, and interesting public and private projects.
5. Do the galleries representing the artist represent other high performing / top selling artists?
A gallery makes a big impact on the trajectory of an artist’s career. The artist’s website should indicate the galleries they’re working with. Review the gallery’s website and socials to get a feel for their professionalism, artist roster, and track record.
6. Does the artist have a public record?
Check the artist’s website or social media for evidence of press coverage, public projects, and institutional interest (e.g. museum acquisitions or exhibitions).
Notice how we didn’t mention the artist’s price point here? The pricing models used by galleries and models are often quite arbitrary. Even when an artist is not selling enough, a gallery will be reluctant to reduce their prices to avoid alienating past collectors, who will perceive the artist’s work as being devalued. In other words, prices often do not reflect demand in an obvious way. The factors above tend to be much clearer signals of an artist’s demand. The main question you need to ask yourself about an artist’s price is whether YOU can afford it, or not.
Much of the above information can be determined from the websites and social profiles of an artist and galleries they work with. But it also helps to attend the artist / gallery’s in-person exhibitions and attend art fairs to feel more certain, as a well-designed website and well-executed social media marketing from artists and galleries can be misleading!
Artwork by Maureen Ness
Wait, All of That Seems Exhausting to Keep Track Of…
IT IS! And that’s why we started this report with the important question: Why do you want to own art? To increase your chances of financial ROI on an already high-risk investment, you’re going to have to learn a lot about artists, galleries, and become knowledgeable about a fairly complex and non-transparent industry. Doing this well requires you to actually care about art. By taking a genuine interest and building a relationship with artists and galleries you love, whose output you feel strongly about, the answers to the questions above will start to come naturally. It shouldn’t feel like work to know which artists and galleries you believe in. Take a leap of faith in their work, ideally early in their careers, and love your collection for the sake of the art and the stories that fuel it. That’s the best investment strategy we can offer (unless, again, you can afford blue chip art).
Notice that every time we mentioned “ROI” in this report, we preceded the acronym with “financial”. That’s because we consider an investment in art much more than a financial investment. It is an investment in yourself, your space, your fellow artists, and arts community— the return on investment in each of these categories is difficult to measure, but tends to be remarkably high, regardless of financial ROI.
One day, that artist you adore might explode in popularity and have a booming resale market. But maybe by the time it happens, you’ll be so connected to the artwork you won’t care to sell it. In our eyes, that’s the most rewarding outcome of all.