The Masterworks platform is relatively affordable, but it’s best suited to people with a solid understanding of art who are looking for portfolio diversification.
There’s a moment in “Titanic” when Kate Winslet’s character, Rose, is hanging paintings from a “new” artist called Picasso. It always struck me as funny that, at one time, people didn’t know what they had.
But one thing has become clear. The value of Picasso’s works has increased dramatically over time. To most people, investing in art is out of the ordinary, but this couldn’t be further from the truth. Ultra-wealthy individuals have used art to grow their status and wealth for centuries.
Jeff Bezos, Bill Gates, and Oprah Winfrey have built collections valued in the hundreds of millions. And before them, the Rockefellers amassed the world’s most valuable art collection ever sold — a staggering $835M.
And with a new platform called Masterworks, you can invest in art without spending millions buying entire works yourself.
What is Masterworks.io?
Masterworks is an online investing platform that lets you buy blue-chip (investment grade) art shares. With Masterworks, you can invest in real multimillion-dollar works by legendary artists like Picasso, Andy Warhol, or Monet.
It primarily deals with contemporary art or works made after World War II. For intensive purposes, consider the terms blue-chip art and contemporary art interchangeable.
Scott Lynn founded Masterworks in 2017 in New York City. The company’s mission is to make blue-chip artwork accessible to everyone rather than limiting ownership to the rich. Masterworks is currently run by 215+ employees who collectively have 75+ years of art curation experience.
Why should you invest in art?
Let’s start with the basics:
This is an example of price appreciation for Monet’s artwork.
Are the returns high? Yes.
Is it out of your price range? No.
Because Masterworks gives you a chance to invest in a fractional share of the artwork, much like the new robo-advisor platforms that allow new investors to purchase fractional shares of stock, again, you don’t need a Bezos-sized bank account to access this investment.
And, as many in the financial world will tell you, diversification should be a key part of your investing strategy. You don’t want all of your funds in one place. Masterworks lets you diversify your portfolio with an investment typically reserved for the world’s wealthiest investments.
As an asset class, blue-chip art has also paced better than the S&P 500 during inflationary periods.
That’s the beauty of artwork – it gets better with age.
How does Masterworks work?
One of the best perks of Masterworks is that you do not have to be an accredited investor through the SEC (Securities and Exchange Commission) to get started. You’ll only need to apply a minimum investment of $15,000 (which can be spread across multiple works of art).
Once you apply for membership, you’ll receive a number and need to have a quick call with one of their investment advisors. They do this to verify your identity and walk you through the platform. It’s incredibly helpful and pleasant.
After you become a member, you’ll have access to investment in the Masterworks art collection. The company’s business model uses an advanced algorithm to determine top artists and collections to invest in, with a proven track record of appreciation. When the company purchases a work of art, they register it with the SEC and issue shares. Shares can be purchased in increments of $20, but no single investor can own more than 10% of the shares of a single work of art. When Masterworks sells the art piece, investors make money and divvie the net proceeds.
How much does Masterworks cost?
Like all investment opportunities, it’s important to understand the fee structure before committing. Masterworks fees are similar to investing with hedge funds.
Masterworks does not charge a signup fee but requires a minimum investment of $15,000, although most clients invest an average of $20k to $30k. The platform also charges a 1.5% annual management fee for all members, which covers transportation, storage, insurance, and administrative expenses. This can be paid with a debit or credit card.
When a painting appreciates and sells, Masterworks charges a 20% commission on any profit gained. While this percentage is seemingly high, it indicates that Masterworks seeks only to buy a piece of artwork that is likely to appreciate as they stand to profit from each sale. Since 2017, they’ve sold three paintings, each realizing a net annualized gain of over 30%. Of course, past performance doesn’t guarantee future results. But the key takeaway is that even after their fees, its investors have still walked away with a good haul.
Masterworks features
-
Specific artwork selection. If you’re a lover of the arts or think traditional investing is a bit dry or uninspiring, Masterworks might offer a much more enjoyable experience. Not only can you invest in a wide selection of classic and highly regarded works of art — but you also get to choose the specific artwork you invest in and can become a partial owner of a piece of art.
-
Helpful art sales and research reports. Masterworks provides plenty of data on each selection of artwork, making it easier for you to invest in art pieces. The company provides auction sales report data for any art pieces sent to auction and general global art reports recapping the current state of the art market and new art trends.
-
Protected investments. Masterworks ensures your investments are secure, safe, and well-preserved to ensure maximum appreciation during sales. Masterworks keeps all of its artwork in a temperature-controlled, museum-quality art gallery. Your 1.5% annual fee helps cover the cost of your artwork’s preservation and safekeeping.
-
Investor trading platform. Another key feature Masterworks provides is access to an investor’s trading platform, where you can buy or sell your shares using the company’s online bulletin board. If you aren’t prepared to wait for Masterworks to sell one of the pieces of art you own shares in, you can trade or sell using this method.
-
Cutting-edge algorithms. It’s in the company’s best interests to ensure your artwork appreciates, which means Masterworks only searches for the top artists and works available through the marketplace. By analyzing buying patterns, new trends, and previous historical appreciation rates, Masterworks can bring high-performing artwork to your fingertips.
How to enroll in Masterworks?
Pros and cons
-
Low share prices. Masterworks makes it easy to invest in blue-chip works of art at a low price. Fractional shares start at just $20 and go up in price in increments of $20. While you’ll need at least $15,000 to get started, this low buy-in price makes it easy to spread your money across multiple high-value works of art.
-
Easy to use platform. One thing I love about Masterworks is how easy it is to use their platform. Purchasing shares of art can be done with a click. The company also provides detailed information about each work of art and artist, so you’re able to quickly and efficiently research your investments prior to buying them.
-
Art outpaces the S&P 500. One great reason to invest in art is that it historically performs well during recessions. In fact, according to the ArtPrice 100 blue-chip art has outpaced the S&P 500 by over 164% over the past 25 years.
-
High commission. On the downside, Masterworks does charge a 20% commission on any profit you earn after a work of art sells. Unless you have a good understanding of the art world, it’s unlikely you’ll invest in a diverse number of top-performing artwork, which means your profit margin (after fees) could be lower than it would be when you start investing in the traditional stock market. If your artwork investments perform like blue-chip art has since 2000, the juice may be worth the squeeze and the commissions are more digestible.
-
Low liquidity. Masterworks anticipates selling a painting within 5 to 10 years through the marketplace, meaning your investment funds could be tied up with this platform for a decade or longer. While you can sell shares through their online bulletin board, this function is still quite new, so there’s no guarantee you’ll find interested buyers there.
Masterworks vs. Competitors
|
Company |
Masterworks |
Arthena |
Public |
|
Accredited Investor Requirement? |
No |
Yes |
No |
|
Signup requirement |
$15,000 investment |
$200,000 annual salary or $1 million+ net worth |
App download |
|
Registered with the SEC? |
Yes |
Yes |
Yes |
|
Fees |
1.5% annually; 20% commission on profits |
Not disclosed (vary by artwork) |
2.5% per transaction |
Accredited investor requirements
Signup requirements
Public has the simplest requirements of all art crowdfunding platforms — simply download the app to get started. Masterworks also allows you to sign up online, though you must complete a phone interview to secure your membership and have $15,000 to invest. Arthena requires an annual salary of $200,000 or more or a net worth of $1 million.
SEC Registered
All three art investment platforms are registered with the SEC.
Fees
Masterworks has a simple fee structure, charging 1.5% annually and 20% on all profits earned by artwork sold. Public charges a 2.5% fee per transaction from both the buyer and seller and a 10% commission fee on profits. Arthena does not list its prices online; fees vary by investor and artwork.
FAQs
Is investing in art a good idea?
Blue-chip art tends to outpace the traditional stock market, making it a great investment option, if you have a background in art collection.
How many shares can I buy with Masterworks?
Masterworks issues shares of its artwork in increments of $20. While you’ll have to invest $15,000 initially, you can spread this money across numerous artwork. Though there is no limit to how many pieces you can purchase shares of, you cannot own more than 10% in shares for any one work of art.
How does Masterworks choose its paintings?
Masterworks’ investing platform uses an algorithm designed to analyze fine art trends and data to select blue-chip works of art expected to appreciate over the next decade. All artwork is purchased by Masterworks’ in-house team of expert art collectors and curators from major galleries and auction houses.
Is it risky to invest with Masterworks?
Any investment is risky. Masterworks takes precautions when choosing artwork and looks for pieces that could appreciate quickly over 3 to 10 years. Masterworks collects a commission only when you gain a profit, so the company is empowered to find valuable artwork.
Of course, paintings could depreciate over this investment period, which would lead to a loss or diminishing returns.
Is Masterworks legit?
Masterworks is an inventive platform designed to help anyone interested in art begin to invest in shares of some of the world’s most influential and valuable masterpieces. The Masterworks platform is easy and relatively affordable, but I would only recommend this software to those with a solid understanding of art looking for portfolio diversification.
