The constant danger of inflation makes the markets remain in a constant state of flux. Investors from all over the world seek to identify profitable investment opportunities to grow and safeguard their wealth.
Alternative investments, particularly investing in notable pieces of art, such as paintings, statues, antiques, etc. have been growing in popularity in recent years, with investment companies focused on alternative asset classes, such as Masterworks, garnering a lot of attention in the process.
In many cases, investors use alternative assets as part of their hedging strategies by introducing exposure to other asset classes to their long-term portfolios.
How Investing in Art Shields You From Inflation
Fine art, such as paintings by some of the most influential classical and contemporary artists, tend to increase in price in tandem with inflation, which is the primary reason why they are viewed as effective hedges against inflation.
However, the process of buying and evaluating individual pieces of art can be difficult and only available exclusively to high net-worth individuals. For this reason, many retail investors are seeking alternatives that focus on asset classes divided into shares, with a low barrier to entry.
Such companies tend to buy up high value art pieces and installations on auction, using an LLC created specifically for this purpose. After the purchase is complete, investors of the firm can buy the shares of the LLC owning the art.
This has its own advantages and disadvantages. While the potential losses to an investor are limited by the structure of the LLC, it also gives them less control over when or whether to sell a particular piece of art and liquidate their assets at the time of their choosing.
Disadvantages of Investing in Art
While art pieces tend to only grow in value over time, they can also be notoriously illiquid and expensive to professionally evaluate.
Let’s assume an example of an investor buying a famous painting for $1 million at auction. First and foremost, the results of the auction are likely to have bloated the value of the piece substantially. The evaluation and pricing process also tends to be costly and long, as question houses must study the price history of the piece, its historic and cultural value, status, etc. to arrive at a dollar value.
Once the auction has been finalized and the painting has a new owner, they will have to periodically reevaluate the piece to keep track of the price performance over time and calculate the annual increase in price, which would constitute the returns from a potential sale in the future, net of auction expenses and safekeeping costs.
Gathering Art Price Data Online
Luckily, investors have solutions at hand to collect price and auction data about millions of art pieces from all over the world, as well as the latest sales and other updates.
Investors can use platforms like Artnet to gather art price data and track sales of some of the most valuable art pieces on the market. This allows them to stay on top of trends on the global art market, price dynamics and statistics, while also having easy access to online auctions as well.
Investors that are equipped with sufficient market data can make faster decisions and avoid overpaying for an art piece.
However, it is also worth noting that such data is more accessible when dealing with paintings and photographs, as other art markets are comparatively less active and selling a piece in your possession can be notoriously difficult, even via auction.