Entrepreneur
Key Takeaways
- Art is a legitimate but illiquid asset class offering diversification and enjoyment.
- Only top-quality works drive returns, making access and research essential.
- NFTs and digital art remain volatile but present evolving investment opportunities.
Art has been bought, sold, passed down and fought over for centuries. But is it a legitimate asset class in the same way that stocks and bonds are?
The short answer is yes, but with some critical caveats.
For decades, I have worked in both the investment world and researched the art market. Today, the art market is vast and global. It is nearly $1.7 trillion, and an increasing amount of data is available to study it and channels are opening up to invest.
Why art, and why now?
The art world has long been a store of value, and its appeal is growing. The global art market is estimated to be worth $1.7 trillion, compared with the $3.8 trillion municipal bond market. Global art sales topped $65 billion last year, with China continuing to play an increasingly significant role in the global market. Private art transactions are up 41%, though other data around art sales vary, with the last three years of top auctions remaining flat or declining.
Young collectors — especially Millennials and Gen Z — are driving demand for emerging and digital artists, creating potential headwinds for traditional contemporary oil-on-canvas works. Art also correlates very little with traditional asset classes, showing just a 0.04 correlation with the S&P 500, which may make it both a financial and consumptive hedge in portfolios.
In a time when investors are seeking both diversification and enjoyment, art provides both. And for those looking to both enjoy and grow their wealth, understanding the nuances of this market has never been more important.
Related: Art is a Business That Needs to be Learnt
It’s not all masterpieces and momentum
Here’s the truth: the art market is highly illiquid, opaque and insider-driven. There is no formal asset allocation model for art. Very few pieces account for the majority of returns — both in dollar terms and as a percentage.
In this vein, art is similar to venture capital investing: a few winners, lots of middling performance and access matters.
My company’s research shows that the best-performing art pieces can deliver long-term yields of over 10%, making them a compelling asset class for investors. Top-quality art tends to remain stable even during economic downturns, offering resilience compared to other markets.
Historically, the art market lags behind broader downturns, meaning it’s often one of the last to feel the impact. While the market moves slowly overall, key moments — such as transitioning into evening sales or setting new auction records — can trigger sharp price jumps for certain artists.
How to participate wisely
There are several ways to invest in art. You can purchase physical works directly from galleries, auctions or artists, giving you full ownership and control. Fractional investment platforms like Masterworks allow investors to buy shares of high-value artworks, though these often come with fees and limited control over decisions. Another option is art funds, where professional managers curate collections and handle transactions on behalf of investors. Finally, art-backed loans let collectors use their artworks as collateral, providing liquidity without selling their pieces.
Whichever route you choose, here are the golden rules I recommend:
- Buy smart: Invest in quality, not just what’s trendy.
- Check provenance: Always verify authenticity, history and condition.
- Diversify: Don’t put all your passion eggs in one basket.
- Document: Track your purchases, value and appraisals.
- Plan for the future: Include art in your estate strategy.
- Buy what you like: Like marrying for money, buying artwork solely for financial reasons, usually results and disappointment and frustration.
Related: Why Investing in Art and Creativity Is Crucial in Today’s Economy
Contrarian view: NFTs may be back
A decade ago, colored bitcoin gave rise to the first “Non-fungible tokens” or NFTs — crypto art. A few years later, with the dramatic rise of CryptoPunks, investors were willing to bet that OpenSea (a marketplace for such items) might be worth more than the venerated Sotheby’s or Christie’s.
The ceiling may have come, as with many things in venture and speculation, shortly after lockdown in 2021, when the digital artist Beeple sold an NFT for $69 million. The gold rush was on: Artists, companies and even some countries raced to issue NFTs. The hangover was severe, with many NFT projects losing nearly all of their value. Those who had told others so were vindicated.
However, in the background, the technology advanced as new uses such as gaming, music and ticketing made use of the rails that the digital art rush had created. As one branch of the family tree created identity tokens, there has been renewed interest in the “blue-chip” collections, and there continues to be creative energy in some newer issues.
Today, we estimate the market to be over $5 billion, with $10 million of daily turnover. What the space ends up being is far from clear, but the abundance of data the tokens create provides a rich field for inquiry. It is likely that future blockbuster NFT sales in some form are still in store.
A word on legacy
Physical art isn’t just an asset; it can act as a bridge to the next generation. Families have used art to shape legacy and values for centuries. But if you want your children (or alma mater, or other inheritor) to benefit, intentionality matters. Write it into your will. Get advised on the right tax strategy. Discuss your vision. Make a plan.
Otherwise, you risk heirs fighting over pieces or worse–selling them without context.
Investors don’t have to choose between serious portfolios and enjoyable ones. Art and collectibles can live alongside equities, fixed income and alternative investments. They can deliver both consumptive capacity and capital appreciation. The key is to be data-driven, clear-eyed and intentional.
After all, investing should reflect who you are. And that’s never one-dimensional.
Key Takeaways
- Art is a legitimate but illiquid asset class offering diversification and enjoyment.
- Only top-quality works drive returns, making access and research essential.
- NFTs and digital art remain volatile but present evolving investment opportunities.
Art has been bought, sold, passed down and fought over for centuries. But is it a legitimate asset class in the same way that stocks and bonds are?
The short answer is yes, but with some critical caveats.
The rest of this article is locked.
Join Entrepreneur+ today for access.
Read the full article here
