Get high returns and diversification investing in fine art!
Hey Bow Tie Nation, Joseph Hogue with the Let’s Talk Money channel and a special video for you today, something we’ve never covered on the channel before, investing in art and how to value artworks as an investor.
I love the idea here because not only can it be a solid investment return that also helps diversify your portfolio from those stock market ups and downs, but it’s a really unique investment. It’s a fun subject and can be a great gift idea around this time of year.
My Experience Investing in Collectibles
Now, my own experience investing in collectibles is…not ideal. I started collecting comic books when I was 12 along with my dad. That was around 1988 and if you know anything about the comics business, the 90s just saw massive printing of these things and a wave of popularity from collectors and fans.
Even after I stopped collecting, around the time I enlisted, my dad still collected for a couple years so by the time he passed in 2001, we had around 24 boxes of comic books…that’s nearly 5,000 comics!
And what I found trying to sell these was that those huge printing runs, really just pumping out millions of each issue in the 90s, that most of the comics were barely worth the original cover price…if that. There were a few good ones in there like the Infinity Gauntlet series and the first issue of Deadpool from ’97 but most…yeah, not so much.
Of course, it was all worth it the time I spent with my dad but if you’re investing in art or any kind of collectible, you need to know what you’re buying and how to invest.
How Anyone Can Start Investing in Fine Art
So I wanted to get the inside scoop here from the CEO of Masterworks.io, Scott Lynn. Masterworks is the first platform to allow Main Street investors to buy shares of investment in fine art, some of the best known artists like Warhol, Monet and Picasso.
Scott founded Masterworks.io in 2017 after founding several internet startups including Payability and V2 Ventures. The company has a research team to find and value works of art on an investment basis, acquires and stores the piece securely, and then creates an LLC on each to sell shares to investors.
The average holding period is three to ten years, after which the art is sold and investors are paid out. And one example here, the company sold Banksy’s Mona Lisa last year for $1.5 billion, an annualized return of 32% to investors.
Now full disclosure, this video is being sponsored by Masterworks.io and we’ll give Scott a chance to talk about the company, but more than that, I wanted to help everyone out there understand the fundamentals behind investing in art, how to get started and how it fits with your overall portfolio.
How Does Investing in Art Work?
Why would someone consider investing in art and what have the returns been?
[Paraphrased Response] Fine art has produced an annualized return of 13% which is comparable with stocks and even higher in some years. More than just the returns though, there are other benefits to owning fine art in a portfolio.
Art is a non-correlated asset with stocks, which means prices don't tend to follow each other. That means investing in art can help smooth your portfolio returns and risk, especially when stock prices fall.
Do you need to be an ‘art-aficionado’? How does someone know if a specific piece is a good investment? Are there ways to value art that even the layperson can use?
Masterworks has a team of art analysts appraising and bidding on art for the portfolio. It's not something that can necessarily be done quickly by the layperson or someone unfamiliar with art prices. While there's a lot of education and training online for investing in stocks, it's not quite the case with art investment.
Where would someone look to start investing in art? Obviously Masterworks gives investors an easy platform approach, but if someone wanted to start their own private collection, where might they look?
Scott recommends looking to the auction houses for investing in art if you're just getting started. These are art houses and dealers with hundreds of years in the business and you want that kind of surety to avoid scams and fakes.
How long should investors expect to hold their art, on the platform as well as private collectors?
Masterworks holds its investments for around 3-5 years but private collectors tend to hold for much longer. Private collectors are generally not investing solely for the return but for the pride of holding a certain piece so generally are only selling when forced.
I noticed you offer a secondary market on the platform as well. What should investors know when trying to sell their art; i.e. fees, discounts to fair value, opportunities to buy shares, etc.?
There are no fees to buying or selling your art on the Masterworks secondary market platform but investors should think of these as long-term investments. Do not expect to be able to sell your investment in seconds like you would a share of stock and it will likely take days or weeks if you want to sell.
We saw that extremely low correlation of returns between art and stocks, basically zero, which means even when stocks crash, your investment in art can help smooth out that overall portfolio return so you don’t freak out.
Beyond that, art can be a really fun investment, right? It’s a world most investors don’t really see so learning about it is going to open up a totally new experience. It’s a great conversation-starter and with Masterworks.io, anyone can own a million-dollar Monet for as little as twenty bucks.
Check out Masterworks.io and get started investing in fine art for great diversification from stocks, a fun conversation piece and excellent returns. Be the first on your block to own a Picasso!
About the Author
Joseph Hogue is a financial expert and investment analyst. After serving in the Marine Corps, he started his career investing in real estate before becoming an investment analyst for some of the largest private investors. He's appeared on Bloomberg and on CNBC as an investment expert and has published ten books in personal finance. Now he helps investors reach their financial goals and invest in the stock market with some of the same advice he used when working for the rich.