Have you ever considered investing in alternative assets like real estate? It’s a great way to invest in portions of a property without buying the entire thing. But what if I told you that you could do the same thing with art? That’s right, you can invest in fine art without having to buy the whole piece! How? With Masterworks, an investment company that offers an innovative platform for art investment.
Now, you may be wondering if this is a scam or a good idea for your portfolio. As an experienced investor myself, I’m here to share everything I know with you.
So, in this article, we’ll be diving into a review of Masterworks. We’ll take a look at the platform, the investment opportunities it offers, and whether or not it’s a good fit for your investment strategy.
Table of Contents
- What is Masterworks?
- Is Masterworks a scam?
- Art Investing vs. Stock Trading
- How does Masterworks work?
- Masterworks Fees
- Who is Masterworks for?
- Praise for Masterworks
- Criticism of Masterworks
- How to sign up for Masterworks?
- How to contact Masterworks?
- Is investing with Masterworks worth it?
- Best Alternatives
- Is there a better way to make passive income?
What is Masterworks?
Masterworks is an investment company that lets you buy shares of high-end art, making it accessible to regular folks like you and me.
What’s great about Masterworks is that they offer a simple investment product that’s easy to understand. You can invest in the same kind of art that was previously only available to the super rich. And according to their calculations, contemporary art prices have outperformed the S&P 500 by a whopping 131% from 1995-2021.
Of course, as with any investment, there are risks involved. Masterworks aims to outperform the S&P 500, but there are no guarantees. Sometimes you win, and sometimes you lose. That’s just the way the investing game works.
Even though the company has only been around since 2017, they take extreme care in holding their assets and insure them against damage or loss. So you can rest assured that your investment is in good hands.
Is Masterworks a scam?
The answer is no. Masterworks is a legitimate investment platform that aims to make investing in art accessible to everyone.
It’s important to note, however, that investing in art is a risky asset class. Masterworks doesn’t guarantee returns, and liquidity can also be a concern, even with its secondary marketplace. As a relatively new company, with only five years under its belt, it’s hard to break down its exact historic performance.
According to the Masterworks website, the company has acquired over 150 assets worth over $650 million and has seen returns of over 17%, net of fees, on seven of their eight exits. While the data may be less reliable due to a limited number of exits, it’s still a promising rate of return. You can also look to the Artprice100 index to get an idea of the expected gains. The index tracks the performance of top artists and outpaces the S&P 500.
Masterworks’ website provides a history of both winners and losers, which includes paintings by top artists such as Claude Monet and Vincent Van Gogh. Although some paintings occasionally lose value, gains tend to outpace losses. However, it’s important to be cautious when investing in artworks by living artists, such as Banksy, as there may be additional concerns. For instance, an artist’s behavior may affect the value of previous artworks.
Art is highly subjective, which makes it difficult to value some works. As with other investments, a diverse portfolio can help you manage risk. Overall, investments in alternatives like artwork should make up only a small part of your total portfolio.
- Learn more: Make Money Online Scams: How to Avoid Them?
Art Investing vs. Stock Trading
While Masterworks has an impressive track record, it’s important to remember that investing always comes with some level of risk. In this case, the liquidity of the secondary market and the ability to trade all shares cannot be guaranteed.
Before investing in high-quality artwork, it’s important to understand the differences between art investing and stock market investing. Let’s take a closer look.
Capital Appreciation: A Waiting Game
One key difference between art investing and stock market investing is how capital appreciation works. With stocks, you may see a return on your investment as the value increases over time, along with dividends. But when it comes to art, you won’t see a return on investment until Masterworks sells their holdings. This means that you’ll need to be patient and wait for the right time to sell in order to see a profit.
Liquidity: A Matter of Time
Another important difference is liquidity. Stocks are highly liquid and easy to buy and sell through brokers. However, rare works of art are much less liquid and may require years of searching to find a suitable buyer. This means that if you need to liquidate your investment quickly, art may not be the best choice.
Value: Personal and Unique
Finally, the value of stocks is typically easier to estimate because a lot of data is available to investors. But determining the true or fair value of works of art is much more difficult because each piece is personal and unique. This means that you’ll need to do your research and rely on expert opinions to make informed decisions about art investments.
In conclusion, investing in high-quality artwork can be a rewarding experience, but it’s important to understand the risks involved. By considering the differences between art investing and stock market investing, you can make informed decisions and invest wisely.
How does Masterworks work?
Investing in art may seem daunting to some, but with Masterworks, the process is pretty straightforward. Here’s how you can add artwork to your portfolio in just five steps.
Step 1: Artwork Purchase
Masterworks uses algorithms to select artists and purchase works of art from them. These algorithms use data from over 1 million art auctions to pick the best artists with a history of appreciation. Masterworks aims to target artworks where the artist has a historical 9% to 39% annual return.
Step 2: Creating Shares
Once Masterworks purchases the artwork, it registers the art with the SEC and then issues shares in $20 increments. Individual investors are not allowed to hold more than 10% of the shares of any specific work.
Step 3: Holding Period
Masterworks holds the artwork, and sometimes even displays it in their members-only gallery in New York City. This holding period lasts for around three to 10 years.
Step 4: Selling Artwork
After the holding period is over, Masterworks plans to sell most of the artworks. This is where investors can expect to see a profit.
Step 5: Profit Splitting
When the art sells, the profits are divided among the pool of investors. Masterworks takes 20% of the profits as a fee.
Secondary Market Option
If you decide to get out early, you can sell on the Masterworks secondary market. Alternatively, you can purchase shares of an artwork that is being sold on the secondary market. Keep in mind that the secondary marketplace is only available to U.S. investors.
To research artists and investment prospects, members and the public can view a free database and blog on the Masterworks website. This can help you make informed decisions when investing in art.
Investing in artwork through Masterworks comes at a cost. To begin with, there’s an annual account fee of 1.5%, which takes care of expenses like storage, security, and insurance.
On top of that, when you sell an artwork, Masterworks takes a 20% commission on the profits. While this may seem high, it’s comparable to what you would pay when investing with a hedge fund.
Despite the steep fees, investing in artwork can still result in a decent profit if the artwork increases in value over time.
Who is Masterworks for?
Masterworks is a good choice for those who want to diversify their portfolio beyond traditional stock, bond and security holdings.
This platform is also a suitable option for those who want to hedge against inflation or compensate for losses through alternative investments. With modern art, investors can expect high returns. In fact, Masterworks often boasts that investing in the best artists can provide returns that exceed those of the S&P 500 or other asset classes like real estate.
However, keep in mind that Masterworks is not the platform for you if you’re looking for a steady stream of dividends from your investments. Additionally, it’s important to understand that even the secondary market does not provide liquidity for U.S. investors.
Praise for Masterworks
1. Diversify your portfolio with Art investment
Investing in artwork is a great way to diversify your portfolio. Art investment has been known to have a low correlation with the stock market, which means it can help protect your investment during market downturns. And, with Masterworks, you can own a share of a masterpiece for as little as $20, making it easier for everyone to invest in fine art.
2. Access to art industry database
One of the greatest advantages of Masterworks is its comprehensive database. The platform provides access to all current prices, specific artists, recent sales data, and annual investment returns. You can easily find and compare different artworks and make informed decisions based on the data.
3. Easy and accessible for all
Unlike traditional art investment, you do not have to be a qualified investor to invest in Masterworks. The platform was created to help everyone, regardless of their financial status. Masterworks handles the entire process of finding, purchasing, and storing the artwork, making it hassle-free for you.
4. Expert research and analysis
Masterworks is not just an art investment platform, but also a research firm. The platform has a team of experts that analyze the art market and the performance of specific artworks. In fact, institutions like Citi use Masterworks research to inform their investment decisions. By investing with Masterworks, you can have confidence that you’re making informed investment decisions based on expert analysis.
5. Early liquidity through secondary market
One of the biggest concerns investors have when investing in art is the lack of liquidity. Unlike stocks, you can’t just sell your artwork with a click of a button. However, Masterworks offers early liquidity through its secondary market. You can sell your shares to other investors on the platform, providing you with an opportunity to exit your investment early if needed. This is a game-changer for art investors, as it provides a level of flexibility that was previously unavailable.
Criticism of Masterworks
1. It’s a new and unproven platform
One downside of investing in Masterworks is that it’s still a pretty new platform, and there isn’t enough historical data to analyze its performance. While you might make a profit on some investments, there’s also a risk of losing everything on others. So, you need to be aware of the risks and do your own research before investing.
2. Capital gains tax
Another potential con of investing in art through Masterworks is the long-term capital gains tax. As artworks are considered collectibles, there is a capital gains tax of 28% on their sale, which is higher than the standard tax rate on long-term capital gains, which is 20%. This extra 8% can add up and eat into your profits, so it’s something to keep in mind.
3. Artwork values are unpredictable
It’s hard to predict whether the value of an artwork will increase or decrease over time. Even paintings from top artists like Monet and Van Gogh may not appreciate in value all the time. Besides, the behavior or news of some living artists may also affect the value of the artwork, which is unpredictable like gambling. So, it’s essential to keep in mind that investing in art can be risky and unpredictable.
4. High fees
Masterworks charges high fees for its service. You’ll be paying an annual fee of 1.5% and a 20% profit share on the artworks sold. While these fees may be reasonable for some investors, they could be a significant factor in reducing your overall returns. So, it’s essential to factor in the fees when considering investing in art through Masterworks.
5. Artwork values are subjective
The value of a work of art is subjective, which is another potential drawback of investing in Masterworks. There is no guarantee that you will make money from the works of the best artists. The value of stocks and gold is determined by the demand and supply on the market and the general economy. But with artwork, the price is determined only by the buyer’s supply. So, the value of a piece of art can be challenging to predict and may not always increase over time.
6. No income stream
A final potential drawback of investing in art through Masterworks is that fine art does not have an income stream. Unlike stocks, bonds, or real estate, which can generate income through dividends, interest, or rent, the only way to make money from art is through capital appreciation. So, you should only invest in art through Masterworks if you’re comfortable with this approach to investing and are looking to build wealth over the long term.
How to sign up for Masterworks?
Investing in art has never been easier thanks to Masterworks. To get started, you’ll need to create an account on the platform. But don’t worry, it’s a breeze!
All you have to do is provide your name, email address, and phone number, and you’re good to go. Once your account is set up, you’ll be able to reserve shares in Masterworks’ listed offerings. While these offerings have yet to be approved by the Securities and Exchange Commission (SEC), you can still reserve shares to be among the first to invest.
If you’ve reserved shares, you’ll receive regular updates from Masterworks so you can stay up-to-date with the latest news. While you won’t be able to invest immediately, you’ll be ready to catch the art investment wave as soon as it arrives. Keep in mind that investors who have already reserved shares will have a head start.
It’s also important to note that each Masterworks share costs $20, and there is a minimum investment. But with Masterworks’ user-friendly platform and expert guidance, investing in art has never been more accessible.
How to contact Masterworks?
Got questions about Masterworks? No problem! Their customer service team is here to help. You can get in touch with them Monday through Friday from 9 a.m. to 6 p.m. Eastern Time.
To reach Masterworks customer service, simply give them a call at 203-518-5172. Alternatively, you can shoot them an email at [email protected]. Whether you’re a seasoned art investor or just starting out, their team is always happy to assist you.
Is investing with Masterworks worth it?
If you’re interested in diversifying your investment portfolio with alternative assets but don’t have a seven-figure net worth, Masterworks may be worth considering. Unlike some other investment platforms, Masterworks doesn’t have a set minimum investment requirement. The minimum varies depending on the specific investment offerings available at the time of investment.
However, it’s important to keep in mind that investing in art comes with risks. Even if you invest in a “blue-chip” artist, there’s no guarantee that you’ll make a profit. Art buyers can be unpredictable, and the value of artwork can fluctuate greatly. As with any investment, you should only invest money that you can afford to lose.
In summary, if you’re willing to take on some risk and are looking to diversify your portfolio with alternative investments, Masterworks could be a fun addition. But if you’re not prepared to potentially lose some or all of your investment, it may not be the best choice for you.
If you’re interested in investing in artwork but don’t have millions of dollars to spend, there are a variety of options available to you beyond Masterworks. Here are a few alternative platforms to consider:
YieldStreet offers a range of investment opportunities, including artwork, real estate, and private equity. While most deals are only open to accredited investors, their flagship fund is available to everyone and has a minimum investment of $2,500. The platform has a user-friendly interface, making it easy to navigate and invest in various asset classes.
2. Rally Rd
If you’re interested in fractional share investing, Rally Rd is worth checking out. They offer a variety of assets, including artwork, luxury cars, rare comic books, wine, and even non-fungible tokens (NFTs). Like Masterworks, you can invest in fractional shares, with shares starting as low as $1. Rally Rd’s platform is user-friendly, making it easy to invest in a diverse range of assets.
While we believe that Masterworks is the leading platform for investing in artwork, it’s always a good idea to explore all of your options and consider your risk tolerance before investing.
Each platform has its own benefits and drawbacks, so it’s important to do your research and choose the one that best fits your investment goals and preferences.
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