Masterworks Review: Alternative Investing in Art For The Masses
Have you ever dreamed of owning artwork as an investment? Investing in art can be tricky, and you need a good chunk of change to get started. But with Masterworks, you can actually buy shares in pieces of art, which could prove to be a good investment in the future.
What is Masterworks?
Masterworks is basically a crowd investing platform, similar to the myriad platforms currently available for investing in real estate. It’s similar, except that it focuses on works of art. According to Deloitte, most wealth managers for the truly wealthy recommend putting at least some art in an investment portfolio. And the average artwork has a 9% to 15% return on investment.
For most of history, those who invested in art were those who could buy a single piece or more for millions of dollars. That’s not most of us! But Masterworks is seeking to change that reality by making it possible for everyday people to invest in shares of multi-million dollar pieces of art.
Features of Masterworks
Masterworks is an art investing platform. Their team buys a painting based on its historical rates of appreciation. It then files an offering for shares of the painting with the Securities and Exchange Commission and then sells shares to investors at $20 per share. Investors get exclusive analytics on their pieces and shares, and when an art collector offers to buy a painting, investors can vote on whether or not to sell.
Eventually, Masterworks hopes to have the option for investors to trade their shares through brokerages. However, this feature isn’t currently available and isn’t likely to be available for the next year.
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You may be wondering how you actually get that return on your investment. One way is upon sale of the painting when Masterworks will repay investors according to their shares. The second option is for the potential, eventually, to buy and sell trades similarly to how you can currently buy and sell stocks.
Pricing and Fees
You can invest in a Masterworks piece for $20 per share, with a minimum buy-in amount set for individual pieces. Typically the minimum buy-in is between $500 and $1,000. As a shareholder, you can then vote on whether or not Masterworks should sell pieces to collectors. Masterworks hopes to add a painting every couple of months to its portfolio, so you can decide on a piece-by-piece basis whether or not to buy in.
Masterworks also charges an annual 1% management fee. When Masterworks sells a piece of art that has increased in value, it takes 20% off the top before distributing the remaining 80% of the sale price to investors.
Signing Up for Masterworks
You can sign up to open an account on the Masterworks website. When Masterworks has a piece available for investing, you can choose to invest in that piece according to its minimum investment.
Masterworks asks for a variety of information from its investors, including your credit card information when you decide to invest in a piece. Typically, Masterworks will not give your information to third parties except for service providers they use to help manage their site. Other than that, Masterworks uses standard security measures like SSL and encryption to ensure that your data stays safe.
Masterworks doesn’t have an app, but it does offer a nice mobile website that gives you the option to apply or to check in on your phone.
Masterworks gives you the ability on its site to schedule a call with their customer service team. You can also communicate via message on their website.
Pros and Cons of Masterworks
- Allows you to invest in art: Obviously investing in real artwork that’s likely to gain value over time is out of the question for the average person. With Masterworks, even small investors can afford to invest in art.
- Low minimums: A $500 to $1,000 minimum investment is fairly low as far as unique investment options in property go.
- Diversification: Art is just one more way to diversify your investment portfolio. It’s a tactic the very wealthy have used for ages, and now it’s one that you, too, can access.
- Tricky market: In spite of what Masterworks and Deloitte will say, art is definitely not a guaranteed market. It’s tricky to know which pieces and artists’ work will appreciate and which will unexpectedly decline.
- High fees: Generally the management fees for Masterworks are pretty high, compared with other alternative investment options, especially with the 20% Masterworks takes when they sell a piece at a profit.
- Low liquidity: With no way to sell your shares on a secondary market, you should plan to stick with any Masterworks investment for quite a long time, unless investors decide to sell a particular piece.
Who is Masterworks For?
If you’ve already got a solid investment system going and a fairly diverse portfolio, Masterworks can be one way to round out your portfolio with even more diverse investments. It’s best used as a platform for those who already have a more standard investment strategy going, though. And be sure you can truly spare that investing minimum from your current investments before you dive in.
In short, Masterworks is seeking to do what crowdfunding platforms have been doing for a while with real estate investments. It’s one option that opens up a new form of investing to middle-range investors who wouldn’t otherwise be able to tap into the high-priced art market. Just be sure you understand the minimum investments, fees, and long-term nature of this type of investment before you jump in.