The Pros and Cons of Investing in Blue-Chip Art
Investing in blue-chip art used to be something only high-net-worth individuals could do. Now, it’s also something that anyone with much smaller amounts of disposable income can do.
No longer just for the 1%, now more people can buy the top 100 artists
How would you like to own a Warhol? Or a Picasso? Perhaps a Kusama? Investing in blue-chip art used to be something only high-net-worth individuals could do. Now, it’s also something that anyone with much smaller amounts of disposable income can do.
Welcome to the world of fine art investing. Just like stocks and bonds, now collectors can invest in multi-million dollar paintings. And like these investments, art can increase (or decrease!) in value, meaning that collector-investors can turn (or lose!) a profit.
Should investors use blue-chip art as investment vehicles? Let’s explore.
What is Blue Chip Art?
In business, “blue chip” is a term used to describe industry leaders with many successful years in business. Blue-chip art is similar in that it is created by the most recognized artists. Their work is typically sold for the most money at auctions, and people wait in lines to see it at museums.
A lot of art is expensive, but if it doesn’t have that universal recognition, it’s often considered speculative. This means that the price of a piece might go up in 10 years, but it could also go down if the market loses interest in the artist who created it. Will Leonardo da Vinci lose his rockstar status in the art world? It’s highly unlikely. But most artists will. Therefore, even if they are currently considered established artists and sell for a small fortune, their art is still considered speculative.
Blue Chip Art as an Investment
Many people who invest in blue-chip art consider their investments just as part of their portfolio. They want to buy a theoretical “piece” of an artwork made by well-known artists who they know will go up in value, just as they want stocks from companies who have plenty of room to grow. Of course, the big difference between buying a share in an artwork and a share of a company is that you’re only buying a small part of an artist’s oeuvre, rather than buying into the vision of an entire business.
On a whole, the total growth of the art market’s top 100 artists since 2000 was +405 percent by the end of the year, giving credence to the idea that blue-chip art is a wise investment.
Artprice’s blue-chip artists index, the Artprice100©, is similar to the S&P 100 in that it is adjusted annually. This allows a rotating door for artists who are no longer considered the creme de la creme to exist while successful artists can enter.
Blue-chip art is proven resilient to global crises. ArtPrice reports that in 2008, while the S&P 500 posted huge losses, the Artprice 100 lost only a quarter of its value. In 2019, Artprice100 outperformed the S&P 500. And in 2020, when the art industry was hit hard by the pandemic, the index actually grew 1.8 percent. This happened largely because the art industry pivoted their business online, and the index’s top 100 artists made modest earnings for investors.
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How to Invest in Blue Chip Art
While most people can’t afford art that costs millions of dollars, investment platforms like Masterworks allow people to make investments in $20 increments to own a share of a masterpiece by Picasso, Warhol, or other bigshot artists.
The company uses ArtTech to analyze auction data to anticipate which artists and artworks will appreciate in value over time. It targets work by artists whose pieces have typically yielded annual returns of 9 percent to 15 percent. Artworks are registered with the SEC, and no one investor can hold more than 10 percent of an individual piece. Proceeds are divided among all investors.
Should I Invest?
The answer isn’t a simple “yes” or “no.” First, despite artworks by the top 100 artists performing very well, the market is volatile and often fickle. In 2019, The Art Newspaper reported that if you had made an investment in a work by Jeff Koons for $100 in 2000, it would only be worth $54 in 2018.
You should also consider what your comfort level is with a lack of diversity. In 2020, only four women were included in the Artprice100 index: Yayoi Kusama, Joan Mitchell, Louise Bourgeois, and Barbara Hepworth. While there was a little more racial diversity, a quick glance down the list shows the names of mostly white men. There is, however, more democratization among investors — no longer is it just the 1 percent who can afford blue-chip art.
Your answer should have a lot to do with your level of risk (any investment may, after all, lose money!) — and it should also have to do with whether you believe that the artist will still be a leading artist in 10, 15, 20 years. Masterworks, for instance, has a plan to hold most work for five to 10 years. After all, you probably wouldn’t buy Amazon stock today if you thought the company would tank in just a few years. You should believe in the history — and future — of both an artwork and an artist.
