Investing in Art: Everything You Need to Know to Benefit in 2024 and Beyond

1. Determine Your Expectations

Successful investment starts with defining your goals. While this tip always sounds like a cliché, it holds extreme significance in the art world. What do you hope to achieve? Are you aiming for profit, preserving wealth, tax mitigation, or collecting art for personal enjoyment? The more clearly you define and even quantify your goals, the more clearly you can determine whether you want to own such an asset.

Like any investment, art does not guarantee a solid return. The renowned art market economist Magnus Resch, PhD, notes that “99.9% of the available pieces, generally do not share the same investment potential.” The acquisition of one or several works of art does not, in itself, constitute an art investment.

Instead, as with any investment, you should research past auction records, market trends, and consult with financial, art, and legal advisors. This approach can help you estimate the artwork’s potential selling price and identify factors that might influence its value over time.

For individuals who are interested in art as an investment but may not have established a well-defined direction, valuable guidance may be found by looking at others’ collections. For example, Mandel’s extensive art collection, “reflects a vibrant period in post-war American and European art.”

Paintings from the Mandel collection: “Still Life with Head in Landscape” by Roy Lichtenstein (Sotheby's employee holds) and “Femme, oiseau” by Joan Miro (behind Sotheby's employee)
Source: Getty Images

Barbara Mandel, wife of the late Morton Mandel, cited famed Italian American art dealer Leo Castelli on the importance of research in art collecting:

I wish you’d taken years to learn more about what you’re going to be collecting.
— Barbara Mandel in an interview for Sotheby’s auction house

Barbara and Morton Mandel tell their story as collectors of 20th and 21st-century art
Source: Sotheby’s

2. Consider the Cornerstones of a Successful Purchase

Discerning investors understand the importance of due diligence when acquiring high-value paintings. Focusing on three key factors — authenticity, provenance, and artist reputation — will help to distinguish between average pieces and works of art with a high potential return.

Owning a genuine work by a famous artist also preserves its legacy. Counterfeits offer no such value, and galleries have unfortunately fallen victim to cleverly forged works. Reputable art dealers and auction houses are, on the contrary, obliged to provide documentation proving the artwork’s legitimacy.

Pablo Picasso’s “Les femmes d’Alger (Version ‘O’)”
Source: Getty Images

The documented history of ownership adds significant value to a painting. A well-documented provenance serves two crucial purposes. First, it confirms the artwork’s authenticity, increasing the value of your investment. Second, it protects against potential legal issues arising from unclear ownership history.

Recently, blockchain technology has emerged as a promising solution for tracking art provenance, providing a tamper-resistant digital ledger that helps ensure the integrity and traceability of art ownership records.

An artist’s current and potential reputation is another essential factor. The sale of masterpieces by renowned artists at auctions commands, or at least has the potential to allow for, high prices. This reinforces the prominent position of the artist’s work in collections, thereby enhancing their recognition and appreciation.

Additionally, investors should consider several other critical aspects in their due diligence. These include the supply and demand dynamics of the art market, personal risk tolerance to the illiquidity of art investments, appropriate insurance to protect the artwork, and proper storage. Thoroughly vetting these elements helps ensure protection from fraud and secures an investment that will appreciate over time, offering aesthetic pleasure, financial reward, or both.

3. Diversify Your Art Portfolio

The number of billionaires worldwide has more than quadrupled since 2000, and many devote part of their wealth to [...] a passion for art.
— Mark Haefele, the Chief Investment Officer of UBS Global Wealth Management as quoted in MyArtBroker

Investment in art can be divided into two main categories. The first is known as blue-chip art, which includes works by world-famous artists such as Picasso or Monet. These assets have stood the test of time and often cost more than paintings by contemporary artists.

On the other hand, red-chip art, which includes works by Mike Winkelmann (known as Beeple), Jonas Wood, Adrian Ghenie, and others, refers to works by emerging artists who have gained popularity or commercial success through non-traditional means, often involving social media.

The threshold for investing in aspiring artists is lower, and their works have the potential to gain more value if they break through to the global stage. However, this is precisely why this niche is considered riskier and more unpredictable, as no one can predict popularity.

Nevertheless, many of today’s blue-chip artists were once considered red-chip in their time. Banksy, for instance, known today for his anti-authoritarian art in public places, started as an anonymous street artist in the UK, gaining local recognition for his provocative and satirical graffiti.

Over time, Banksy’s unique style and social commentary caught global attention, transforming him into a blue-chip artist. His piece “Girl with Balloon” famously self-destructed after selling for USD 1.3 million at auction, and the remains, now titled “Love is in the Bin,” fetched even higher prices later.

Banksy’s “Girl With Balloon”
Source: Getty Images

Integrating art into a diversified investment portfolio can potentially reduce volatility, as art’s value is often not directly tied to traditional financial markets. This makes it a good hedge against economic downturns. For instance, during the Global Financial Crisis, auction prices fell by about 27.2% from 2007 to 2009. In contrast, the S&P 500 dropped 57% from its peak in October 2007 to its low in March 2009. While art sales rebounded to 2007 levels by 2011, the S&P 500 took until 2013 to recover.

Another benefit of art is that it outperformed the S&P 500 index by 122% in 2023 and 223% since 2000, according to data provided by Artprice. The chart below illustrates the performance comparison between the S&P 500 Index, the Artprice100 Index (which tracks the performance of the top 100 artists in the art market), and the STOXX Europe 50 Index, which provides a representation of supersector leaders in Europe.

Comparison of the performance of the Artprice100 Index, the STOXX Europe 50 Index, and the S&P 500 over 2000-2024 (base 100 in January 2000)
Source: Artprice

4. Find Your Best Way to Invest in Art

Now that you have decided on your goals and the fundamental principles for choosing paintings, it is time to find your best way to invest in art.

Public auctions, such as those held by reputable auction houses Christie’s and Sotheby’s, offer an opportunity to observe the auction process and gain detailed insights into the provenance and authenticity of artwork. Although art auction investing has many advantages, the high entry threshold makes them less accessible to most mass affluent investors. Moreover, auctions can also be unpredictable, with prices driven up by real-time bidding competitions, and typically include high buyer’s premiums that add to the cost.

Another contemporary way to invest in paintings is to purchase digital artwork in the form of NFTs (non-fungible tokens). These blockchain-based assets authenticate ownership of digital artwork and offer transparency and verifiable provenance, addressing key concerns of authenticity and digital copyright.

Platforms like OpenSea and Nifty Gateway have become popular marketplaces for NFT art, allowing collectors to purchase, sell, and trade digital artworks with ease. For instance, Beeple, a trailblazing digital artist, gained international recognition for his NFT artwork “Everydays: The First 5000 Days,” which sold for USD 69.3 million at Christie’s in March 2021.

Beeple’s “Everydays: The First 5000 Days”
Source: Christie’s

Everyone interested in NFTs for art investment should exercise meticulous due diligence, as the market is fraught with risks. Their value is tied to digital trends and may fluctuate over the long run. Similar to red-chip artists, only a small percentage of NFT collections prove profitable. Potential investors should also research platforms thoroughly, verify artist credibility, and assess market trends before considering NFTs as part of their investment portfolio.

Specialized online platforms and art investment funds are other ways to invest in high-value paintings without the need for a physical presence and millions of francs in your bank account. Moonshot, for instance, is now developing portfolios of tangible assets, including watches and art, that require relatively modest capital and will enable investors to diversify portfolios with these assets.

Find the Reward in a Unique Asset Class

Art investment requires a nuanced blend of passion, knowledge, and strategic foresight. By staying informed about market trends and emerging talents, and by forging meaningful relationships within the art world, investors can both safeguard and increase their wealth and also contribute to their personal enjoyment. As the art market continues to evolve, those who are both discerning and adaptable will find themselves best positioned to reap the rewards of this unique asset class.