So, you’ve become put off by the stock market’s constant volatility and are in the hunt for an additional investment class that can generate passive, secondary income while diversifying your portfolio. As you likely know, the art market has emerged as a viable alternative, and for good reasons, which we’ll get into below. But it’s important to note that in the last two decades, art has outperformed the S&P 500, returning more than 360 percent. That’s no small feat.
But let’s evaluate art as an alternative investment asset and see if such investments are right for you.
Why is the Art Market So Popular?
Less than a generation ago, small investors or those merely seeking portfolio diversification never really considered the art market. Such was the rarified air of mucky-muck art houses, with investors plunking down hundreds of millions for some coveted artwork or another.
And while such blockbuster purchases still occur, art has become decidedly more accessible, partly due to the Internet. For instance, there are alternative investment platforms such as Yieldstreet that allow investors to invest in art through art funds or fractional ownership, and at minimal entry price points. What’s more, such technology has improved overall market transparency, which had been a knock against the class. Through digitization, risk is minimized because you can easily check and verify things such as pricing and provenance.
Also, in addition to the art class being relatively independent of the stock market, art investments can also serve as a hedge against inflation.
What Are Art Funds?
As we say, one way to invest in art is through an art fund, a privately held entity that generates returns by buying, holding, and unloading art. With such funds, the firm gets a management fee as well as a portion of any returns the fund delivers. You’ve got to be in it for the long haul, however, as you shouldn’t expect to see returns for between five and seven years, after making capital contributions for around three to five years.
Keep in mind that funds vary in terms of size, duration, strategies, and portfolio ceilings, and that the fund manager handles decisions regarding what to buy and when to sell. In other words, you needn’t concern yourself with that.
You should also note that art funds buy art to sell – not to own. Most such funds have a date by which the fund’s art investments are to be unloaded, so you aren’t on tenterhooks about when a sale might occur. Indeed, all art must be sold within the fund’s life cycle.
What is Fractional Art Investing?
Fractional fine art investing basically allows you to purchase shares of art, rather than buying whole works outright. The practice makes fine art investing more accessible, particularly in this technological age. With platforms such as Yieldstreet, you can take advantage of a cache of artworks by emerging, blue-chip, and mid-career artists – with a single, minimal investment.
So, here’s the deal, if you’re evaluating art as an alternative investment asset, understand that while there is risk, as there is with any investment, and you must be in it for the long haul, there is plenty of upside, as you can see. In fact, according to Deloitte, 81 percent of survey respondents reported wanting wealth managers to include art in their offerings. That’s an increase of 66 percent over 2017.
And as mentioned, you may want to consider the investment programs at Yieldstreet, which offers ways to generate secondary income — including art that is vetted by experts.